Question

A new furnace for your small factory will cost $36,000 and a year to install, will require ongoing maintenance expenditures of $1,000 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,300 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

A new furnace for your small factory will cost $47,000 and a
year to install, will require ongoing maintenance expenditures of
$1,500 a year. But it is far more fuel-efficient than your old
furnace and will reduce your consumption of heating oil by 4,400
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...

A new furnace for your small factory will cost $39,000 and a
year to install, will require ongoing maintenance expenditures of
$1,100 a year. But it is far more fuel-efficient than your old
furnace and will reduce your consumption of heating oil by 3,600
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...

A new furnace for your small factory will cost $38,000 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 3,500
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...

A new furnace for your small factory will cost $30,000 and a
year to install, will require ongoing maintenance expenditures of
$1,800 a year. But it is far more fuel-efficient than your old
furnace and will reduce your consumption of heating oil by 2,700
gallons per year. Heating oil this year will cost $3 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...

A new furnace for your small factory will cost $28,000 and a
year to install, will require ongoing maintenance expenditures of
$1,600 a year. But it is far more fuel-efficient than your old
furnace and will reduce your consumption of heating oil by 2,500
gallons per year. Heating oil this year will cost $3 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...

Econo-Cool air conditioners cost $330 to purchase, result in
electricity bills of $156 per year, and last for 5 years. Luxury
Air models cost $530, result in electricity bills of $112 per year,
and last for 8 years. The discount rate is 20%. a. What is the
equivalent annual cost of the Econo-Cool model? (Do not round
intermediate calculations. Round your answers to 2 decimal places.)
b. What is the equivalent annual cost of the Luxury Air model? (Do
not...

Growth Enterprises believes its latest project, which will cost
$84,000 to install, will generate a perpetual growing stream of
cash flows. Cash flow at the end of the first year will be $9,000,
and cash flows in future years are expected to grow indefinitely at
an annual rate of 4%.
a.
If the discount rate for this project is 10%, what is the
project NPV? (Do not round intermediate
calculations.)
NPV
$
b.
What is the project IRR? (Do not...

Growth Enterprises believes its latest project, which will
cost $87,000 to install, will generate a perpetual growing stream
of cash flows. Cash flow at the end of the first year will be
$6,000, and cash flows in future years are expected to grow
indefinitely at an annual rate of 7%.
a. If the discount rate for this project is 13%, what is the
project NPV? (Do not round intermediate calculations.)
b. What is the project IRR? (Do not round intermediate...

A precision lathe costs $21,000 and will cost $31,000 a year to
operate and maintain. If the discount rate is 15% and the lathe
will last for 4 years, what is the equivalent annual cost of the
tool? (Do not round intermediate calculations. Round your
answer to 2 decimal places. Enter your answer as a positive
value.)
Equivalent annual cost

Econo-Cool air conditioners cost $400 to purchase, result in
electricity bills of $169 per year, and last for 5 years. Luxury
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and last for 8 years. The discount rate is 25%.
a. What are the equivalent annual costs of the Econo-Cool
models? (Do not round intermediate calculations. Round your answers
to 2 decimal places.)
b. What are the equivalent annual costs of the Luxury Air
models? (Do not...

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