Question

Select the correct range for the project's equivalent annual cost (AE). The project's cash flow is in the table below.

n	Net Cash Flow
0	-50,000
1	-60,000
2	-70,000
3	-80,000
4	-90,000
5	-100,000

		AE < -400,000
		-400,000 < AE < -50,000
		-50,000 < AE < 50,000
		50,000 < AE < 400,000
		400,000 < AE

Answer 1

We dont have the discount rate, we cannot calculate the exack AEC. We can just estiamte.

observation a)

We can observe that cost in year 1 is $60000 and it increases by $10000 per year. So, Annual equivalent cost will be more than $60,000.

observation 2 b)

If we find that annual equivalent cost of $50,000, it will further add something to AEC obtained in statement a.

We know that AEC cannot be more than $400,000 in this case.

So, correct option is

-400000<AE<50000