Question

In September 2015, a 3.45 megawatt cooling, heating, and power​ (CHP) system was placed in into operation for Southeast Regional Hospital with 360 beds. The CHP system was part of a new 20,000 sq. ft. central utility plant that provided the 800,000 sq. ft.​ Health-care facility with cooling, heating and power. By centralizing all of the utilities in one location, the hospital accrued significant energy savings, as well as improved maintenance efficiency. The financial facts related to the project are summarized as

 

Installed​ cost: $2.4 million 

Annual energy cost​ savings: $765,000 

Annual​ O&M costs: $225,000 

Project service​ life: 16 years

Salvage​ value: $200,000

At an interest rate of 12​%, what is the net savings per dollar​ invested?

Answer 1

To calculate Net Savings of CHP Systems, we calculate the Net Present Value of CHS System.

Year	Cash Flow	Discounting Factor @ 12%	Present Value
0	(24,00,000.00)	1	(24,00,000.00)
1	5,40,000.00	0.892857143	4,82,142.86
2	5,40,000.00	0.797193878	4,30,484.69
3	5,40,000.00	0.711780248	3,84,361.33
4	5,40,000.00	0.635518078	3,43,179.76
5	5,40,000.00	0.567426856	3,06,410.50
6	5,40,000.00	0.506631121	2,73,580.81
7	5,40,000.00	0.452349215	2,44,268.58
8	5,40,000.00	0.403883228	2,18,096.94
9	5,40,000.00	0.360610025	1,94,729.41
10	5,40,000.00	0.321973237	1,73,865.55
11	5,40,000.00	0.287476104	1,55,237.10
12	5,40,000.00	0.256675093	1,38,604.55
13	5,40,000.00	0.22917419	1,23,754.06
14	5,40,000.00	0.204619813	1,10,494.70
15	5,40,000.00	0.182696261	98,655.98
16	7,40,000.00	0.163121662	1,20,710.03
Total			13,98,576.85

Thus, Net Savings including the cost of CHS system and salvage value is $ 1,398,576.85.

Net Savings per dollar invested = $ 1,398,576.85/ $ 2,400,000 = 0.58274.

Thus, Net Savings per dollar invested is $ 0.58.