EXAMPLE 6.1 Finding Annual Equivalent Worth by Conversion from Net Present Worth (NPW) A hospital uses four coal-fired boilers to supply steam for space heating, domes- tic hot water, and the hospital laundry. One boiler is operated at times of low load and on weekends, two are operated during the week, and the third boiler is normally off-line. The design efficiency on a steady load is generally about 78%. The boilers at the hospital were being run at between 70% and 73% efficiency, due to inadequate instrumentation and controls. Engineers have proposed that the boiler controls be upgraded. The upgrade would consist of installing variable- speed drives for the boiler fans and using the fans in conjunction with oxygen trim equipment for combustion control. The cost of implementing the project is $159,000. The boilers have a remaining service life of 12 years. Any upgrade will have no salvage value at the end of 12 years. The annual electricity use in the boiler house is expected to be reduced from 410,000 kWh to 180,000 kWh as a result of variable speed control of the boiler fan (because with the variable-speed drives, the fan motors draw only the power actually required to supply air to the boilers). This is equivalent to $14,000 per year. This savings is expected to increase at an annual rate of 4% as the cost of electricity increases over time. Coal use will be 2% lower due to the projected improvement in boiler efficiency. This corresponds to a cost reduction of $40,950 per year. This savings is pro- jected to increase as the coal price increases at an annual rate of 5%. If the hospital uses a 10% interest rate for any project justification, what would be the annual equivalent energy savings due to the improvement