There's not always money in the banana stand
The Bluths contemplate rebuilding their frozen banana stand, which they will operate as a loss leader. The building and equipment would have a total cost of $345,000 and a five-year useful life, at the end of which the building and equipment will be worthless. It will require an initial NWC investment of $25,000 and annual OCF of -$41,000. If the required return is 11 percent, what is this project's equivalent annual cost, or EAC?
Initial fixed asset investment $ 345,000
Initial NWC investment $ 25,000
Annual OCF $ (41,000)
Required return 11%
Project life 5
Assignment: By referencing cells D7:D11 and using Excel functions for rows 24 and 25, calculate the annual cash flows [3 points], the present value of the annual cash flows [1 point], and the Equivalent Annual Cost [2 points].
Note: Correct calculations, which reference a higher row with an incorrect number will receive full credit.
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
PV of costs
EAC
