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NPV and Heat & Mass Transfer, Cengel, 5th Ed, Chp 3. 1. NPV Analysis, 4%yr Increase for Lab Maintenance, NPV-0 reqd 11.13 The Mechanical Engineering

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NPV and Heat & Mass Transfer, Cengel, 5th Ed, Chp 3. 1. NPV Analysis, 4%yr Increase for Lab Maintenance, NPV-0 reqd 11.13 The Mechanical Engineering and Engineering Mechanics department of at an initial cost of $200 000. Annual operating cost: $2000; useful life: Michigan Technological University set up a brand new energy laboratory 10 years; end-of-useful-life salvage value: $50 000. Every semester 130 students are required to take the lab with an associated fee. The academic year has two semesters and the number of students in each semester is assumed to be the same. A fund is to be set up to replace the laboratory at the end of 10 years of its useful life. To provide the capital for the replacement, a deposit will be made at the end of each year of the collected fees less operating costs to that fund. Market interest rate is 6%. The cost of maintenance is to be escalated at 4% annually. The capital required for the replacement of the equipment is estimated to be $500 000 in year 10. Calculate the lab fee required. Assume a fixed fee amount for the next 10 years

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