A gas-fired heating unit is expected to meet an annual demand for thermal energy of 500 million Btu, and the unit is 80% efficient. Assume that each 1,000 cubic feet of natural gas, if burned at 100% efficiency, can deliver one million Btu. Further suppose that natural gas is now selling for $7.50 per 1,000 cubic feet. What is the PW of fuel cost for this heating unit over a 12-year period if natural gas prices are expected to increase at an average rate of 10% per year? The firm’s MARR (= im) is 18% per year.

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.