Question

A

2 comma 5002,500

square foot house in New Jersey costs

​$1 comma 8001,800

each winter to heat with its existing​ oil-burning furnace. For an investment of

​$5 comma 5005,500​,

a natural gas furnace can be​ installed, and the winter heating bill is estimated to be

​$1 comma 0001,000.

If the​ homeowner's MARR is

66​%

per​ year, what is the discounted payback period of this proposed​ investment? (please show work in excel)

A 2,500 square foot house in New Jersey costs $1,800 each winter to heat with its existing oil-burning furnace. For an investment of $5,500, a natural gas furnace can be installed, and the winter heating bill is estimated to be $1,000. If the homeowner's MARR is 6% per year, what is the discounted payback period of this proposed investment? Choose the correct answer below. A. The discounted payback period of this proposed investment is 10 years. B. The discounted payback period of this proposed investment is 7 years. C. The discounted payback period of this proposed investment is 8 years D. The discounted payback period of this proposed investment is 9 years.

Answer 1

Option A is correct

Cost savings are -1000 - (-1800) = 800 annually.

Initial cost (PV) is -5500

There is no salvage value. Interest rate is 6%

Use excel function NPER to see that the discounted payback period is NPER(6%,800,-5500,0)

The answer is 9.12.

Since it takes more than 9 years to recover the investment, the discounted payback period is 10 years.