Answers
Let first cost of controller be x
Market value at the end of the service life = 11% of x = 0.11x
Time period = 13 years
Interest rate = 12%
Calculate the equivalent annual cost of controller -
EAC = x(A/P, 12%, 13) - 0.11x(A/F, 12%, 13)
EAC = (x * 0.15568) - (0.11x * 0.003568)
EAC = 0.15568x - 0.0039248x
EAC = 0.1517552x
Annual cost of current method = $4,000
Equating the two annual costs -
0.1517552x = 4,000
x = 4,000/0.1517552
x = 26,358.24
The maximum economic price for the controller is $26,358.24
This is approximately equals to $26,365
Hence, the correct answer is the option (B).
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