Equivalent uniform annual cost

Under this scenario, the most economical control device is the ESP, as its EUAR is the largest (i.e., least negative) of the three. (Put another way, it has the lowest equivalent uniform annual cost.)... 

Table 27.9, a table of capital recovery factors, enables us to calculate the equivalent uniform annual cost (EUAC). The 120,000 figure is our base (No. 1 in Table 27.9). In conventional accounting, this would likely determine the capital charge the department manager would see on the income statement if the company used straight-line depreciation. It represents only depreciation of the asset. Using a 15 percent cost of capital...

Compare the true equivalent uniform annual cost for these two machines and indicate which one you would choose. 

Typically, firms have a limited amount of funds to invest in new projects. How do they decide which of several competing projects to finance These decisions are made via one or more measures of merit. The three most commonly used measures are (1) net present worth (NPW), (2) internal rate of return (IRR), and (3) equivalent uniform annual revenue (EUAR). Inextricably tied to each of these measures is the annual interest rate, i, or opportunity cost. A succinct definition of the opportunity cost is A dollar today is worth more than the prospect of a dollar tomorrow. ... 

Calculate the capital recovery factor. In this method, each of the undiscounted net cash flows (NCFs) for years 1 to 20 is algebraically added to the capital recovery cost (CRC) to obtain the equivalent uniform annual revenue (EUAR). The CRC is the product of the total capital investment,... 

Capital recovery costs The equivalent expense to recover the cost of an investment, like that for fixed assets and working capital. The calculation normally uses asset life, salvage value, and the cost of capital to make the conversion. Also called equivalent uniform annual cash flow. ... 

The annual worth method converts all cash flows to an equivalent uniform series of equal annual payments. As in the present worth method, if the annual worth of the revenues is greater them the annual worth of the costs for the specified interest rate, then the project is acceptable. The annual worth of alternative j and i percent rate of interest per period, which lasts for n periods, is... 

Construction costs are generally assumed to be disbursed uniformly between the start of construction and the startup time, although equivalent results can be obtained if they are considered to be a lump-sum disbursement taking place hallway between the start of construction and startup. The present worth of construction costs that are assumed to occur uniformly over a period of years T prior to startup can be calculated using either continuous interest compounding or discrete (annual) interest compounding. 

This factor finds an annuity, or uniform series of payments, over n periods at /% interest per period that is equivalent to a present value, P. For example, what savings in annual manufacturing costs over an eight-year period would justify the purchase of a 120,000 machine if a firm s minimum attractive rate of return (MARR) were 20% ... 

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