Question

A new production system for a factory is to be purchased and installed for $148,907. This system will save approximately 300,000 kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh, and factory MARR is 15% per year, and the salvage value of the system will be $9,033 at year 6. Using the PW method to analyzes if this investment is economically justified

A- calculate the PW of the above investment and insert the result below.

Answer 1

Ans)- Installation cost = $148,907

And, this system will save approximately 300,000 kWh of electric power each year for a 6-year period. the cost of electricity is $0.10 per kWh.

i.e. saving per year will be (S) = 300,000*0.10 = $30,000 for 6 years

MARR is 15%. i.e., r=0.15

Salvage value = $9,033 at year 6

Now, we have the discounting factor formula for calculating present worth of savings,

Here, n=6 years and r = 0.15

Hence, the required present worth of the investment,

Since, PW of investment is negative. Hence, this investment is not financially viable or economically justified.