Question

3. Energy cost for a manufacturing venture is estimated to be $5000 next year. This cost can be reduced by 80% with the installation of an energy-saving equipment costing $20,000 now. If energy cost rises by sso0 per year after the next year and the operation is to last for 15 years, would you recommend getting the energy-saving equipment if the interest rate is 8% per year? (Show detailed working) AA 2 5000 CFIP7-,15)5e0 Cla875) 5000 3.1722) 500 (27.152) 15881 135 74.05 -22 84 Frefit No 4. A steel fabrication company invested $800,000 in a new shearing unit. The company obtains a monthly net income of $20,000. Ifthe company uses a minimum acceptable rate of return of 12 % per year, compounded monthly, what is the equivalent payback period for this investment? A 800p000 AlP, 30 800, 000(0.10046) -80,368 cry yea cempnd ed mthly) rs122 in Clak \0.1268 K1ec (perjear, cempded awnudy As 20 Pay bmcds TP+ACPIA,iMS.CAlfim Favilsbe FPAACPIA iM)e ENGT 331 Test2 - page 2 (4te (4eej"

Answer 1

3.

Energy saving in first year after installing device = 0.80 * 5000 = 4000

Increase in energy-saving per year after installing the device = 0.80 * 500 = 400

NPW of Device = -20000 + 4000 * (P/A, 8%,15) + 400 * (P/G, 8%, 15)

= -20000 + 4000 * 8.559479 + 400 * 47.885664

= 33392.18

As NPW of device is positive it should be installed

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