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An electric utility is considering two alternatives (both with a 10-year life) for satisfying state regulations regarding pollution control for one of its generating stations.
An electric utility is considering two alternatives (both with a 10-year life) for satisfying state regulations regarding pollution control for one of its generating stations. Plan A involves replacing the burners and switching from fuel oil to clean burning coal. The cost of the option will be $300,000 initially and an extra $900,000 per year in fuel costs. Plan B involves replacing the burners and switching from fuel oil to natural gas. The cost of the option will be $1, 200,000 initially and an extra $350,000 per year in fuel costs. Assume a real interest rate of 7% per year and an inflation rate of 4% per year. What is the overall interest rate? (If needed, Round-off to nearest whole number) 4% 7% 11% Unknown
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