A precision lathe costs $12,000 and will cost $22,000 a year to operate and maintain. If the discount rate is 14% and the lathe will last for 4 years, what is the equivalent annual cost of the tool?

A precision lathe costs $12,000 and will cost $22,000 a year to operate and maintain. If the discount rate is 14% and the lathe will last for 4 years, what is the equivalent annual cost of the tool?
 

Explanation
Some values below may show as rounded for display purposes, though unrounded numbers should be used for actual calculations.

PV of costs = $12,000 + [$22,000 × Annuity factor (14%, 4 years)]

                                                        = $12,000 +  $22,000  ×  [1.14 − 1.14 ×  (1.14)4] = $76,101.67


The equivalent annual cost is the payment with the same present value. Solve the following equation for C:

                                 C × [1.14 − 1.14 ×  (1.14)4] =  $76,101.67  ⇒  C=  EAC = $26,118.46


Using a financial calculator, enter n = 4; i = 14; FV = 0; PV = (−)76,101.67; compute PMT.

Note:


Must be share, It will help you find more data from next time sreach from Google.