SULIT/CONFIDENTIAL Question 5 (12 Marks) A heat recovery network is planned to be installed to a plant. The heat recovery system costs RM12,000 to be installed. It is estimated that in the first year the savings will be RM3,500, and a scheduled increase of energy cost in year 2 means that the savings increases to RM4,000 per year, The required rate of return is set at 14% per annum. Table 5 contains the input data. a) What is the net present value? b) What would the NPV be with a required rate of return of 8%? c) What assumptions did you have to make with this calculation? Cash flows Annual Savings Present Value of future inflows Initial outlay Net present value Table 5: Net Present Value Calculation for the purchase of a new heat recovery network equipment Present Value of RM1, Discounted at 14% Total Present Value KC09903 0 1 3,500 2 (6 marks) Sketch of Cash Flows at End of Year 4,000 (4 marks) marks) 3 4,000 4 4,000