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Individual industries will use energy as efficiently as it is economical to do so, and there are several incentives to improve K the efficiency of

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Individual industries will use energy as efficiently as it is economical to do so, and there are several incentives to improve K the efficiency of energy consumption. To illustrate, consider the selection of a new water pump. The pump is to operate 800 hours per year. Pump A costs $2,000, has an overall efficiency of 81.94%, and it delivers 10.9 hp. The other available alternative, pump B, costs $1,000, has an overall efficiency of 45.6%, and delivers 12.5 hp. Both pumps have a useful life of five years and will be sold at that time. (Remember 1 hp = 0.746 kW.) Pump A will use SL depreciation over five years with an estimated SV of zero. Pump B will use the MACRS depreciation method with a class life of three years. After five years, pump A has an actual market value of $390, and pump B has an actual market value of $190. Using the IRR method on the after-tax cash flows and a before-tax MARR of 18%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 27%. The cost of electricity is $0.04/kWh, and the pumps are subject to a study period of five years Click the icon to view the GDS Recovery Rates (rx) for the 3-year property class. The IRR of the incremental investment is %. (Round to one decimal place.)

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