Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A new furnace for your small factory will cost $45,000 and a year to install, will require ongoing maintenance expenditures of $1,400 a year. But

A new furnace for your small factory will cost $45,000 and a year to install, will require ongoing maintenance expenditures of $1,400 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 4,200 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable future. The furnace will last for 20 years, at which point it will need to be replaced and will have no salvage value. The discount rate is 12%.

a. What is the net present value of the investment in the furnace?

b. What is the IRR? (Do not round intermediate calculations.

c. What is the payback period? (Do not round intermediate calculations.

d. What is the equivalent annual cost of the furnace? (Do not round intermediate calculations.

e. What is the equivalent annual savings derived from the furnace?

f. Compare the PV of the difference between the equivalent annual cost and savings to your answer to part (a). Are the two measures the same or is one larger?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Forecasting Principles And Practice

Authors: Rob J Hyndman, George Athanasopoulos

1st Edition

0987507109, 978-0987507105

More Books

Students also viewed these Finance questions

Question

What are the pros and cons regarding Angelica joining the union?

Answered: 1 week ago