The Gap has some of its jeans stone-washed under a contract with Vietnam Garment Corporation (VGC). If VGC’s estimated operating cost per machine is $26,000 for year 1 and it increases by $1500 per year through year 5, the equivalent uniform annual cost per machine over years 1 to 5, at an interest rate of 8% per year, is closest to:
(a) $30,850
(b) $28,770
(c) $26,930
(d) $23,670
AW = 26,000 + 1500(A/G,8%,5)
= $28,770
Answer is (b)
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