A polisher costs $10,000 and will cost $20,000 a year to operate and maintain. If the discount rate is 10% and the polisher will last for 5 years, what is the equivalent annual cost of the tool? A) $17,163.04
B) $22,187.84
C) $22,637.98
D) $19,411.15

$22637.98

Explanation:

Based on the information given in the question, the equivalent annual cost of the tool will be calculated as:

We first calculate the present value which will be:

= 10000 + 20000/(1+.10) + 20000/(1+.10)^2 + 20000/(1+.10)^3 + 20000/(1+.10)^4 + 20000/(1+.10)^5

= $85815.74

The the equivalent annual cost will be:

= Present Value/PVIFA(10%,5)

= 85815.74/3.7908

= $22637.98

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