Evaluate equivalent annual cost, Financial Accounting

Assignment Help:

Q. Evaluate Equivalent annual cost?

There are a number of techniques to answering this question and two are presented. The first difficulty is in deciding which broad approach to use. The broad approach which appears best is to inflate the cash flows at their different inflation rates and to discount at the money discount rate. Using this wider approach the lowest common multiple method would look like

The lowest common multiple is 2 × 3 = 6 years therefore the cash flows for each of the alternatives will be presented in these terms.

2 year cycle: (cash flows are overstated according to their individual inflation rates)

2316_Evaluate Equivalent annual cost.png

3 year cycle: (cash flows are overstated according to their individual inflation rates)

552_Evaluate Equivalent annual cost2.png

Therefore a two year replacement cycle is preferable since it represents the lowest cost.

On the other hand an equivalent annual cost approach could be used

2 year cycle: (cash flows are overstated according to their individual inflation rates)

280_Evaluate Equivalent annual cost3.png

Equivalent annual cost = 12705/ (annuity factor at 15% for two years) = 12705/1·626 = 7813

3 year cycle (cash flows are inflated according to their individual inflation rates)


Related Discussions:- Evaluate equivalent annual cost

Return on investment, Return on Investment (ROI) - Ratio measure of the pro...

Return on Investment (ROI) - Ratio measure of the profits achieved by a firm by its fundamental operations. An indicator of management's general efficiency andeffectiveness. The si

Prepare a surprise county construction fund balance sheet, During FY 2014, ...

During FY 2014, the voters of Surprise County approved construction of a $21 million police facility and an $11 million fire station to accommodate the county's population growth.

#titleaccounting concept.., what is the implication of applying accounting ...

what is the implication of applying accounting concept wrongly

Capital asset pricing model to estimate a project, Q. Capital asset pricing...

Q. Capital asset pricing model to estimate a project? CAPM could have been utilized to estimate a project - specific Ke if the project activities were different from that of th

Preparation and presentation of financial statements, PREPARATION AND PRESE...

PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS OF LIMITED COMPANIES This is a chapter dealing with company financial statements, a topic frequently examined. Do not be

Cash flow, Please use the budget information in Assignment 7.1-case to prep...

Please use the budget information in Assignment 7.1-case to prepare the budget in the Excel document Assignment 7.1-budget and cash flow.

Required: prepare journal entries for the above transactions, Sleek Ride, a...

Sleek Ride, a company providing limo services, has a December 31 year-end date. For Sleek Ride, the following transactions occurred during the ?rst 10 days of June: a. Purchased, o

Case, I need help on my accounting assignment

I need help on my accounting assignment

Steps in preparing the consolidated balance sheet, Steps in preparing the c...

Steps in preparing the consolidated balance sheet Step 1 : Prepare the 3 important accounts i.e. cost of control to determine goodwill Group retained profits Mino

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd