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Air conditioning for a college dormitory will cost $2.4 million to install and $155,000 per year to...

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Finance

Air conditioning for acollege dormitory will cost $2.4 million to install and $155,000per year to operate. The system should last 16 years. The real costof capital is 6%, and the college pays no taxes. What is theequivalent annual cost? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)

Equivalent annual cost           $

Answer & Explanation Solved by verified expert
4.5 Ratings (894 Votes)
In order to compute the equivalent annual cost we shall use the undermentioned formula Net Present value of project Present value annuity factor of the project We first shall compute the net present value of project by using the following function Initial cost Year 1 cash outflow 1 cost of capital 1 Year 2 cash outflow 1 cost of capital 2 Year 3 cash outflow 1 cost of capital 3 Year 4 cash outflow 1 cost of capital 4 Year    See Answer
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Transcribed Image Text

Air conditioning for acollege dormitory will cost $2.4 million to install and $155,000per year to operate. The system should last 16 years. The real costof capital is 6%, and the college pays no taxes. What is theequivalent annual cost? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)Equivalent annual cost           $

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