Champion Bakers uses specialized ovens to bake its bread. One oven costs $830,000 and lasts about 3 years before it needs to be replaced. The annual operating cost per oven is $9,000. What is the equivalent annual cost of an oven if the required rate of return is 9 percent? (Round your answer to whole dollars)

$337895 is the equivalent annual cost

Explanation:

Equivalent annual cost =

(Asset Price x Discount Rate)/{1-(1+ Discount Rate)^(-Number of Periods)}

=(830000*9%)/(1-(1+9%)^(-3))

= $327895+ Operating cost

=$327895+$10000

=$337895 is the equivalent annual cost

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