Reference no: EM131914489

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.