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Nippon Steel’s expenses for heating and cooling a large manufacturing facility are expected to increase according...

Nippon Steel’s expenses for heating and cooling a large manufacturing facility are expected to increase according to an arithmetic gradient beginning in year 2. If the cost is $550,000 this year (year 0) and will be $550,000 again in year 1, but then it is estimated to increase by $49,000 each year through year 12, what is the equivalent annual worth in years 1 to 12 of these energy costs at an interest rate of 12% per year?

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Answer #1
Annualised equivalent worth is ($844080)
Year Cash outflows PVf @ 12% Present value
0 -550000 1 -550000
1 -550000 0.892857 -491071
2 -599000 0.797194 -477519
3 -648000 0.71178 -461234
4 -697000 0.635518 -442956
5 -746000 0.567427 -423300
6 -795000 0.506631 -402772
7 -844000 0.452349 -381783
8 -893000 0.403883 -360668
9 -942000 0.36061 -339695
10 -991000 0.321973 -319075
11 -1040000 0.287476 -298975
12 -1089000 0.256675 -279519
Present value of cash outflows -5228567
Divide: Annuity of 12 years at 12% 6.1944
Annualised Equivalent worth -844080
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