A University needs to acquire a boiler for its restaurant. There are three possibilities for powering the boiler: natural gas, fuel oil or coal. A cost analysis shows that the cost of the boiler already installed, with all controls, would be minimal in the case of natural gas, $30,000; for fuel oil it would be $55,000 and for coal 180,000. In the case of using natural gas in place of fuel oil, the annual cost of fuel is increased by $7,500 annually. On the other hand, if coal is used instead of fuel oil, the annual cost will be reduced by $15,000. Assuming an interest rate of 8% per annum, an analysis period of twenty years, and no residual value, which facility is the most economical?
A University needs to acquire a boiler for its restaurant. There are three possibilities for powering the boiler: natural gas, fuel oil or coal. A cost analysis shows that the cost of the boiler already installed, with all controls, would be minimal in the case of natural gas, $30,000; for fuel oil it would be $55,000 and for coal 180,000. In the case of using natural gas in place of fuel oil, the annual cost of fuel is increased by $7,500 annually. On the other hand, if coal is used instead of fuel oil, the annual cost will be reduced by $15,000. Assuming an interest rate of 8% per annum, an analysis period of twenty years, and no residual value, which facility is the most economical?
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter26: Capital Budgeting (capbud)
Section: Chapter Questions
Problem 5R
Related questions
Question
A University needs to acquire a boiler for its restaurant. There are three possibilities for powering the boiler: natural gas, fuel oil or coal. A cost analysis shows that the cost of the boiler already installed, with all controls, would be minimal in the case of natural gas, $30,000; for fuel oil it would be $55,000 and for coal 180,000. In the case of using natural gas in place of fuel oil, the annual cost of fuel is increased by $7,500 annually. On the other hand, if coal is used instead of fuel oil, the annual cost will be reduced by $15,000. Assuming an interest rate of 8% per annum, an analysis period of twenty years, and no residual value, which facility is the most economical?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning