Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A small company heats its building and spends $8,000 per year on natural gas for this purpose. Cost increases of natural gas are expected to
A small company heats its building and spends $8,000 per year on natural gas for this purpose. Cost increases of natural gas are expected to be 10% per year starting one year from now (i.e., the first cash flow is $8,800 at EOY one). Their maintenance on the gas furnace is $345 per year, and this expense is expected to increase by 15% per year starting one year from now (i.e., the first cash flow for this expense is $396.75 at the EOY one). If the planning horizon is 15 years, what is the total annual equivalent expense for operating and maintaining the furnace? The interest rate is 18% per year. The total annual equivalent expense for operating and maintaining the furnace equals the product of the sum of the annual equivalent expense on gas and the annual equivalent expense for maintaining the furnace and the appropriate (A/P, i%,N) factor. The present equivalents of these expenses can be determined using the following equation: P={A1{1(P/F,i%,N)(F/P,f%,N)}iff=if=i} A small company heats its building and spends $8,000 per year on natural gas for this purpose. Cost increases of natural gas are expected to be 10% per year starting one year from now (i.e., the first cash flow is $8,800 at EOY one). Their maintenance on the gas furnace is $345 per year, and this expense is expected to increase by 15% per year starting one year from now (i.e., the first cash flow for this expense is $396.75 at the EOY one). If the planning horizon is 15 years, what is the total annual equivalent expense for operating and maintaining the furnace? The interest rate is 18% per year. The total annual equivalent expense for operating and maintaining the furnace equals the product of the sum of the annual equivalent expense on gas and the annual equivalent expense for maintaining the furnace and the appropriate (A/P, i%,N) factor. The present equivalents of these expenses can be determined using the following equation: P={A1{1(P/F,i%,N)(F/P,f%,N)}iff=if=i}
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started