A new bottle-capping machine costs R45 000, including R5000 for installation. Operating and maintenance costs are expected to be R3000 for the first year, increasing by R1000 each year thereafter. The salvage value is calculated by straight-line depreciation where a value of 0 is assumed at the end of the service life.
(a) Construct a spreadsheet that computes the equivalent annual cost (EAC) for the bottle capper. Wha t is the economic life if the expected service life is 6, 7, 8, 9, or 10 years? Interest is 12%.
(b) How sensitive is the economic life to the different length of sendee life? Construct a sensitivity graph to illustrate this point.