ACCA FM · Chapter 8 · Question 3 of 10
The present value of the costs of owning a vehicle over a 4-year replacement cycle is $84,000. The cost of capital is 9%, and the 4-year annuity factor at 9% is 3.240. What is the equivalent annual cost (to the nearest $)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $25,926
Explanation
EAC = PV of costs / annuity factor = 84,000 / 3.240 = $25,926 (nearest $). Dividing by the number of years ($21,000) ignores the time value of money.
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