A Machine Lasts 3 Years and Has a Purchase Price

question 22

Short Answer

A machine lasts 3 years and has a purchase price of $100. It costs $40 per year to operate and can be sold as junk for $15 at the end of its life. What is the EAC of the costs of operating a series of such machines into perpetuity if the discount rate is 15%?

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Definitions:

Reservation Price

The highest amount a customer is prepared to spend on a product or service.

English Auction

A type of auction in which the price ascends with each subsequent bid, and the highest bidder wins.

Willingness To Pay

The maximum amount an individual is ready to spend to acquire a good or service or to avoid something undesirable.

Expected Revenue

The anticipated amount of money that a business or project will generate over a specific period.