(a) Compare the EUAC for the following plans using a MARR of 8%, and an analysis period of 50 years..

(b)What assumptions were made that should be considered before deciding between Plans A and B?

Data Plan A Plan B Equipment First Cost $50,000 $75,000 Annual Operation & Maintenance Cost $3,000 $2,500 Salvage Value $10,000 $0 Service Life, Years) 25 50

The EUAC of A & B respectively are:

$4,497.10 and $6,335.07 (decision should be to go with Plan A as it costs less on an annualized assessment

B.

We considered the purchase costs against the time value of the costs and interest rate.

We also considered the operational costs and benefits of salvage costs

Explanation:

Equivalent uniform annual cost (EUAC)

This is an approach adopted when faced with an option of outright investment in an item or rentals or lease of similar or same item over a period of time.

It helps in converting the costs of the acquisition into equivalent uniform annual costs which can then be compared to the rentals uniform cost to help with easy decision making

Step 1.

You will need a rate (possible a rate of opportunity cost)

Step 2

Add 1 to the interest rate

Step 3

Raise the answer to the power of n (n is the useful life of the purchase)

....let's call d result (a)

Step 4.

Take (a) - 1

.....let's call this (b)

Step 5.

(a) divided by (b)

Let's call the result (c)

Step 6.

(C) multiply by the interest rate in step 1.

Let's call this (d)

Step 7.

(d) multiply by the purchase price of the item

The result you get is the EUAC....let's call it (e)

Where the item has a salvage value after its useful life, this counts as an inflow and benefit to the purchaser. This is how we factor that in:

Step 8.

Multiply the salvage value by our (b) above.

Let's call that (f)

Step 9

Multiply (f) by the interest rate in step 1

This is the Uniform salvage benefits

Let's call it (g)

Step 12.

Now deduct (g) from (e), this becomes the adjusted EUAC which can be compared to the periodic rental cost to help with decision making.

You may please refer to the attached for a detailed presentation of the answer.

750 h and costs $0.60 per bulb.

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