Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed

Individual industries will use energy as efficiently as it is economical to do so, and there are several incentives to improve 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 $1, 800, has an overall efficiency of 81.61 %, and it delivers 11.4 hp. The other available alternative, pump B, costs $1, 100, has an overall efficiency of 44.23%, and delivers 12.1 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 $380, and pump B has an actual market value of $210. Using the IRR method on the after-tax cash flows and a before-tax MARR of 20%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 37%. The cost of electricity is $0.04/kWh, and the pumps are subject to a study period of five years. The IRR of the incremental investment is %. (Round to one decimal place.) The incremental investment in pump A economically justifiable

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

Essentials Of Corporate Financial Management

Authors: Glen Arnold

1st Edition

1405847042, 978-1405847049

More Books

Students also viewed these Finance questions