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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 $58,000 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 15% per year? The equivalent annual worth is determined to be $

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Answer #1
Year Cashflows PVF at 15% Present Value
0 -550000 1 -550000
1 -550000 0.869565 -478261
2 -608000 0.756144 -459735
3 -666000 0.657516 -437906
4 -724000 0.571753 -413949
5 -782000 0.497177 -388792
6 -840000 0.432328 -363155
7 -898000 0.375937 -337591
8 -956000 0.326902 -312518
9 -1014000 0.284262 -288242
10 -1072000 0.247185 -264982
11 -1130000 0.214943 -242886
12 -1188000 0.186907 -222046
Net Present value -4760064
Divide: Annuity PVF at 15% 5.42062
Equivalent Annual worth -878140
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