This tutorial is a part of our series in Engineering Economics. Here we will be studying the concept of Equivalent Annual Cost or sometimes also called Equivalent Uniform Annual Cost. This Equivalent annual cost is normally used to analyze economic comparisons of two or more assets with differing lifespan.
May this video help you in your studies. Thank you!
Here are the problems solved in the video:
Problem 1:
Find the equivalent annual cost of a Php1,200,000 backhoe machine that costs Php50,000 to maintain annually and will have a salvage value of Php150,000 after 10 years if i = 8%.
Problem 2:
A working student wants to know what kind of backpack to buy given the following options:
Option 1: Option 2:
Cost = Php4000.00 Cost = Php 1600.00
n = 5 years n = 2 years
SV = Php250.00 SV = 0
Which bag should he buy to get the most out of his money if i = 5%?
Problem 3:
A restaurant owner wants to open a new branch. He is considering two options:
Option 1: Rent a place Option 2: Buy a lot and build
Rent = Php250,000/year Lot = Php2,500,000
Initial Renovation = Php400,000 Building = Php1,800,000
O&M = Php25,000 O&M = Php40,000
SV = 0 SV = Php3,400,000
Using Equivalent Annual Cost Method, which option is better if the source of fund and opportunity costs are not an issue and if i = 8% and the period being considered is 15 years.
Engineering Economics/ Equivalent Annual Cost or sometimes also called Equivalent Uniform Annual Cost
Engineering Economics/ Equivalent Annual Cost or sometimes also called Equivalent Uniform Annual Cost
Engineering Economics/ Equivalent Annual Cost or sometimes also called Equivalent Uniform Annual Cost