Bridgton Golf Academy is evaluating different golf practice equipment. The “Dimple-Max” equipment costs $94,000, has a three-year...

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Bridgton Golf Academy is evaluating different golf practiceequipment. The “Dimple-Max” equipment costs $94,000, has athree-year life, and costs $8,600 per year to operate. The relevantdiscount rate is 12 percent. Assume that the straight-linedepreciation method is used and that the equipment is fullydepreciated to zero. Furthermore, assume the equipment has asalvage value of $18,000 at the end of the project's life. Therelevant tax rate is 34 percent. All cash flows occur at the end ofthe year. What is the equivalent annual cost (EAC) of thisequipment?

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Calculation of cash flow from year 0 to 3 Year 0 Initial cost 94000 Year 1 to 3 Annual cash flow Operating cost 8600 Tax benefit of Operating cost See Answer

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Bridgton Golf Academy is evaluating different golf practiceequipment. The “Dimple-Max” equipment costs $94,000, has athree-year life, and costs $8,600 per year to operate. The relevantdiscount rate is 12 percent. Assume that the straight-linedepreciation method is used and that the equipment is fullydepreciated to zero. Furthermore, assume the equipment has asalvage value of $18,000 at the end of the project's life. Therelevant tax rate is 34 percent. All cash flows occur at the end ofthe year. What is the equivalent annual cost (EAC) of thisequipment?