Question

A new furnace for your small factory will cost $42,000 and a year to install, will require ongoing maintenance expenditures of $1,200 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,900 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable future. The furnace will last for 20 years, at which point it will need to be replaced and will have no salvage value. The discount rate is 6%. a. What is the net present value of the investment in the furnace? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) b. What is the IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. What is the payback period? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What is the equivalent annual cost of the furnace? (Do not round intermediate calculations. Round your answer to 2 decimal places.) e. What is the equivalent annual savings derived from the furnace? (Do not round intermediate calculations. Round your answer to 2 decimal places.) f. Compare the PV of the difference between the equivalent annual cost and savings to your answer to part (a). Are the two measures the same or is one larger?

Answer 1

@computation of net present value (NPV) of investment in the furnace ? 1 Initial investment in furnace = $42,000 I Preset value of future calle ? flows from furnace i do = 1,29,314.42 (working note-1) © NPV of the furnace (8-4), LE : 873319.42 I working note to computation of prof future T Calle flows from furnace. (i) the period for instalation is one year - . there is no savings in fule and - no maintanance expenditure in year-1 (i) the fuel savings and maintanance - expenditure start from year 2 onwords ii) As per the given information the - fuel rate in oo ich lit, Avi - --) Year-2 = $2+ $0.5 + $0.5 = $3.per to Gallow - -) Year 3 = $3+$05 = $3.50 per Gallon w and the same $3.50 per Gallon viel will be the fuel rate from year- to year 22

fu computation of Prof future cash flows Annual Year Ruat Savea ha pricel Savings wat i in $ in $ Savings have Net cash ftritt in $ 2 3,900 Galloug $3 $11,700 $1,200 $16,500 13-20 13,900 Gallos $3.50 $13,650 $1200 3-20 3,900 Gallos porno por $12,450 pr of a Call flows year / Net i puf @ 6% for I calle year 2 & I flows FUAF@6. for (20-2) years o 2 $10,500.10.8900. ld $ 9,345 3-20. $12,450.*.9.6365_ $ 119,97 4.42 prof future call flows $1,29,319.42 PUAF @ 6% for 20 yeares = 11.4699 ELPUAFE 6% for a years = (1.8334) PUAFC 64. for (20-2 years a $9.6365 Assumption is in the problem it was given o the furnelce last for de xeared and it take a one year for instalation we assumed that the intlalation period also included in such ao-geares auf we will get savings for 19-yeares only

Lo computation of IRR. ) out flowe3 $ 42,000 Inflow a year- 2 = $ 10,500 · Year 3 to 20 = $ 12,450. N trile - @ 22% year IC PUF/PNAF pr of CF @22-). 2 $10,500 0.6719 $7,054.95 3-20 $12,450 9.4688) $36, 961.56 pr@ 224.. $44,016.51. trile - © @ 234. year CF; 1.PVF. / PVAF LPV of CF. | @287 0.6610 $6,940.50 1 2 $10,500 13-20 $12,450 g. 8046/$34,917.271 $41,857.77.11 By applying IRR= 22% + interpolation formular. $44,016.51 - $42,000 x:1. $44,01651 - $4859.77 - 2 + x 1. $ 8 , 016:51 $2158.74 Tre = 22.937

o Pay-back gay-balk period year Initial Investment R$ 42,000. cash cumulative flow calle flows. 0 $10,500 $10,500 $12,450 | deb 960 $12,450 / $ 35,400* $12,450 $47,850*| pay-back period 4 yeares't/Initial investment Liel -cumulative CFS T in year-4 ? CF in year-5 24 Yearel + $42,000 - $35,400 $12,450 34 yearest $6,600 $12,450 pay-back period = 4 15 3 yeared

@ Computation of furnace of equalialant n annual calt Tequivalent annual cast of furnance initial for of futurel cast + maintanance, of cost in Furnace Inicured a PRAR@ 6% for 20 years - = $42.000 + $1200 x PVAF (6%. 20-Dya PVAF C G7 for 20 yed livro = $ 42,000+ $1200_X 10.5265 11.4699... Equavalent = $4,763.06 per anname annual cast || of furance. Po 11 @ Equavelent anincial savings Equavalant Nof full Savings Savings PV AF for 20 yeared annual To E pood (1,200 X 0.8900)+(13, 650X9.6365 (11.4:699) $1,41,951.22 11:46.99 a Equavalent annual $12, 375.98 Savings /

Hellona Parision between equivalent annual Calt and equivalent annual savings with NPV Computed in part @ T Annualized ? NPV for the = furnace I $87, 319.92 pored 11.4699 = $7,612096. li) Differences between i annualized Savings and annualizea cult of Burmance A l l = $12,375.98 - $ 4763.06. - $5 7,612.92 which is appoximately canal to annualized NPV o Conputed above (i). i. These two measures ic Aannualized Savings and Annualized Cuft to gether (the difference representing the annualized NPV from project. DJ the
please consider the assumption mentioned in pag 2 of the answer before came to conclusion regarding the answer.

a. NPV = $ 87319.42

b. IRR =22.93%

c. Playback period = 2.53 years

d. EAC = $4763.06

e. EAS = $12375.98

f.yes, these two measures the same

Answer 2

WRONG ANSWER DONT DO IT, YOU PIECE OF INDIAN SHIT