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?

Expert Answers

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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

$20819.02

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