Use present worth-annual cost and rate of return methods

Assignment Help Financial Management

Reference no: EM13868470

An electrical energy audit indicates that the motor control center consumption is 8´10⁶ kWh per year. By using high efficiency motors, a savings of 15% can be achieved. The additional cost for these motors is about $80,000. Assuming that the average energy charge is $0.08 per kWh, is the expenditure justified based on a minimum rate of return (i.e., a discount rate) of 18% before taxes. Assume a 20-year life cycle and use the present worth, annual cost, and rate of return methods.

Reference no: EM13868470

Questions Cloud

Treasury bonds which pay semi-annual coupons : Consider 3 Treasury bonds which pay semi-annual coupons. Bond A has 5 years remaining to maturity and a coupon rate of 10%. Bond B has 20 years remaining to maturity and a coupon rate of 10%, and Bond C has 20 years remaining to maturity and a coupon..

Assumed to earn sufficient revenues to generate tax shields : Pilot Plus Pens is deciding when to replace its old machine. The machines current salvage value is $2.26 million. Its current book value is $1.46 million. If not sold, the old machine will require maintenance costs of $851,000 at the end of the year ..

Determine the life cycle of the existing heating system : A residential building is heated with a 78 percent efficient gas-fired furnace (costing $1,600). The annual heating load is estimated at 160 MMBtu. The cost of gas is $6.00/ MMBtu. For the discount rate of 5 percent and a 10-year cycle, determine: Th..

Depreciated over four years using the straight-line method : Scott Investors, Inc., is considering the purchase of a $362,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method. Calculate the NPV of this project.

Use present worth-annual cost and rate of return methods : An electrical energy audit indicates that the motor control center consumption is 8´106 kWh per year. By using high efficiency motors, a savings of 15% can be achieved. The additional cost for these motors is about $80,000. Assuming that the average ..

How much money company should set aside to pay for machine : A Company is considering the purchase of a new machine that will last 8 years and cost $ 90,000 the first year, decreasing by $ 1,000 each year to $ 2,000 the eighth year. Determine how much money the company should set aside to pay for this machine:..

Assume interest is compounded monthly : You need to save a total of $12,000 in order to buy a new boat. You are starting with no savings, but you will be able to deposit $40 per month. How long do you need to save in order to reach your goal? In excel, compute and graph the number of years..

Appropriate expected rates of return for three securities : The expected return for the general market is 13.0 percent 9.2, and the risk in the market is 9.2 percent. Tasaco, LBM, and Exxos have betas of 0.838, 0.652 and 0.572 respectively. What are the appropriate expected rates of return for the three secur..

What will be the book value of the forward contract : Belsen purchased inventory on December 1, 2009. What will be the book value of the Forward Contract on December 31?

User Account

All Pages