Reference no: EM131914500

The purpose of this question is to help you understand how the annualized equivalent of the capital and operating costs of a facility is determined and what it means. Suppose that we consider a 15-year planning horizon, starting now ("time 0") and ending 15 years from now ("time 15"). The capital cost of building a plant is $1,000,000, incurred at time 0. The operating cost is $200,000, incurred at the end of each of the 15 years. In addition, the plant equipment requires a major overhaul at the end of Years 5, 10, and 15, at a cost of $100,000. Using a discount rate of 5%, determine and report the net present value (NPV) of the capital and operating cost. Next, determine and report an annualized capital and operating cost, incurred at the end of each of the 15 years, that has the same NPV as the actual capital and operating cost.