R.Jones (Salford) Limited has received a quotation for 12,400 for installing insulation (both external and cavity type) in its office building during December 2020. You ascertain the following information:

Its fuel bill for 2021 is expected to be 20,000.

The bank has offered a loan at 5% per year.

Fuel prices are expected to increase at 3% per year.

The scheme is expected to save 10% of the annual fuel bill.

Once 6 years have lapsed, the firm is planning to relocate to a new building in another area, so it has decided to base its initial evaluation on a 6-year project life. Because of the uncertainties involved, it has also decided to ignore any effect of the improvement on the sale value of the building. The firm requires a risk premium of 2% above its cost of bank borrowing for investments of this type.

Assume that all cashflows arise at the end of the year in which they occur.

Ignore taxation.