What is the equivalent annual cost of the tools?
A polisher costed $10,000 and will cost $20,000 a year to operate and maintain. If the discount rate is 10 percent per year and the polisher will last for 5 years, then what is the equivalent annual cost of the tool?
The initial cost of the polisher is `I=10000`
The cost per year is `C=20000`
The total outgoings on the polisher are then `I +5C = 110000`
At the end of the five years the polisher has depreciated to a value of
`V = 0.9^5 (10000) = 5904.90`
since the annual discount rate is 10%
The total incomings from the polisher at the end of the five years are `V`
The net cost is `I+5C - V = 104095.10`
Per year this is `104095.10/5 = 20819.02`
The equivalent annual cost of the polisher is