# Thread: Equivalent uniform annual cost

1. ## Equivalent uniform annual cost

heres the problem

http://i14.photobucket.com/albums/a3...ristx/eco2.jpg

heres my cash flow diagram and attempt

http://i14.photobucket.com/albums/a3...aristx/eco.jpg

Im having trouble because the A;s change from 4k to 3k........

2. You seem confused at things that ought not be confusing you. You will struggle more and more if you do not get past this.

You MUST learn to resort to "Basic Principles". This will allow you to decode and evaluate ANY string of cash values. If all you know is a bunch of formulas for regular cash flows, you are toast.

When I looked at this problem, I did not even consider the concept that has stumped you - that the payments change from 4000 to 3000. I just saw individual cash flows.

If i = 0.10, v = 1/1.10, then

Original PV = 60000 + 4000v + 3000v^2 + 3000v^3 + 3000v^4 - 60000v^4

I'm not sure what is wanted for "Uniform Annual Cost". It could be this:

Uniform PV = P + Pv + Pv^2 + Pv^3 + Pv^4 = Original PV, where P is the Uniform Annual Cost.

You book or teacher will have to tell you exactly what is meant.

Basic Principles!!! Trust me on this.

3. Thanks.....I see what your saying, i do feel like I keep making these problems more complex than they really are.....

I just took the answer from the first part and plugged it into the Capital Recovery Formula which gives the Equivalent Uniform Annual Cost.....

$A= P\frac{i(1+i)^n}{(1+i)^n-1)}$

4. The solution I came up with seems to suggest that the so-called “equivalent uniform annual cost” is nothing more than the equal (thus, uniform) periodic payments of $R at the end of each year for 4 years had the electronics firm obtained a loan of$A (to be determined from the given information) at a rate of 10% compounded annually.

You then first solve the equivalent debt of $A. It is equal to TK’s Original PV: Original PV = 60000 + 4000v + 3000v^2 + 3000v^3 + 3000v^4 - 60000v^4 ≈ 29,437.88, where i = 0.10, and v = 1/1.10. Similarly, $ A = 60,000 + 4,000(1.10)^{ - 1} + 3,000(1.10)^{ - 2} + 3,000(1.10)^{ - 3} + 3,000(1.10)^{ - 4} $ $ - 60,000(1.10)^{ - 4} \approx 29,437.88 $ You then solve for R in the following equation: $ A = R \cdot \frac{{1 - \left( {1 + i} \right)}} {i}^{ - n} $ With n = 4, and i = 10% = .10, you should have no trouble in arriving at the given answer key. Good luck. 5. Originally Posted by jason03 Capital Recovery Formula which gives the Equivalent Uniform Annual Cost..... $A= P\frac{i(1+i)^n}{(1+i)^n-1)}$ Just look at that beautiful formula. After a little modification, we gain some insight into what it actually means. $A\frac{(1+i)^{n}-1}{i} = P(1+i)^{n}$ The LHS is the accumulation of n payments of$A at the end of each of n years.

The RHS is the accumulation of a single payment of \$P at the beginning of n years.

Note: My Basic Principles version examined the value at the beginning of the n years. The given formula examines the equivalence at the end of the n years. This difference is of no consequence. If you examine ALL the cash flows, it will not matter when you examine them ALL.

Additional Note: My guess at what Uniform Annual Cost might be includes one additional annual payment at the beginning of the n years. This is not consistent with the definition and formula provided. See how important it is to know your definitions and what your formulas mean?!

6. i understand this is an old post but i thought i should provide a clear answer to this problem and how to solve it.

first, solve for present worth (PW)

PW= -60,000 - 4000(P/F,10%,1) - 3000(P/F,10%,2) - 3000(P/F,10%,3) - 3000(P/F,10%,4) + 60000(P/F,10%,4)

PW= -29,437

now convert PW to annual worth to obtain the answer

annual worth, or in this case (because of negative PW it is a cost) EUAC (equivalent uniform annual cost)

EUAC= PW(A/P,10%,4)

EUAC= 9287

any engineering economics book will have interest and annuity tables in the back of the book for the values to solve the above equations.
here is a table i found online for a 10% interest rate
http://www.uic.edu/classes/ie/ie201/1000interest.html

hopefully this will be helpful to anyone else who searches for this.

7. ## Re: Equivalent uniform annual cost

I need help with a unifrom cost probelm
an alternative has a discount project cost of 2195000.00 with no salvage value. The estiamte was in constant dolars and the discount used a mid year factor

while the period of analysis is 5 years the alternative only provides benefits for the last 3 years

So do I calcuate using the data table for a 5 year project or just the 3 years on that table

8. ## Re: Equivalent uniform annual cost

Anyway, go here: 3) An Alternative Has A Discounted Project Cost... | Chegg.com

9. ## Re: Equivalent uniform annual cost

The estiamte was in constant dolars and the discount used a mid year factor .

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10. ## Re: Equivalent uniform annual cost

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11. ## Re: Equivalent uniform annual cost

This problem is really difficult!

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# uniform annual cost definition

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