Homework Help is Here – Start Your Trial Now!
Business
Economics
Individual industries will use energy as efficiently as it is economical to do so, and there are several incentives to improve the efficiency of energy consumption. To illustrate, consider the selection of a new water pump. The pump is to operate 800 hours per year. Pump A costs $2,000, has an overall efficiency of 83.7%, and it delivers 11.2 hp. The other available alternative, pump B, costs $800, has an overall efficiency of 43.06%, and delivers 11.9 hp. Both pumps have a useful life of five years and will be sold at that time. (Remember 1 hp = 0.746 KW.) Pump A will use SL depreciation over five years with an estimated SV of zero. Pump B will use the MACRS depreciation method with a class life of three years. After five years, pump A has an actual market value of $400, and pump B has an actual market value of $200. Using the IRR method on the after-tax cash flows and a before-tax MARR of 20%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 30%. The cost of electricity is $0.05/kWh, and the pumps are subject to a study period of five years. Click the icon to view the GDS Recovery Rates (r) for the 3-year property class. The IRR of the incremental investment is -74%. (Round to one decimal place.) More Info Year 1 2 4 GDS Recovery Rates (r) 3-year Property Class 0.3333 0.4445 Print 0.1481 0.0741 Done

Individual industries will use energy as efficiently as it is economical to do so, and there are several incentives to improve the efficiency of energy consumption. To illustrate, consider the selection of a new water pump. The pump is to operate 800 hours per year. Pump A costs $2,000, has an overall efficiency of 83.7%, and it delivers 11.2 hp. The other available alternative, pump B, costs $800, has an overall efficiency of 43.06%, and delivers 11.9 hp. Both pumps have a useful life of five years and will be sold at that time. (Remember 1 hp = 0.746 KW.) Pump A will use SL depreciation over five years with an estimated SV of zero. Pump B will use the MACRS depreciation method with a class life of three years. After five years, pump A has an actual market value of $400, and pump B has an actual market value of $200. Using the IRR method on the after-tax cash flows and a before-tax MARR of 20%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 30%. The cost of electricity is $0.05/kWh, and the pumps are subject to a study period of five years. Click the icon to view the GDS Recovery Rates (r) for the 3-year property class. The IRR of the incremental investment is -74%. (Round to one decimal place.) More Info Year 1 2 4 GDS Recovery Rates (r) 3-year Property Class 0.3333 0.4445 Print 0.1481 0.0741 Done

Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter5: Investment Decisions: Look Ahead And Reason Back
Section: Chapter Questions
Problem 5.4IP
See similar textbooks
icon
Related questions
Question
Individual industries will use energy as efficiently as it is economical to do so, and there are several incentives to improve the efficiency of energy consumption. To illustrate, consider the selection of a new water pump. The pump is to operate 800 hours per year. Pump A costs $2,000, has an overall efficiency of 83.7%, and it delivers 11.2 hp. The other available alternative, pump B, costs $800, has an overall efficiency of 43.06%, and delivers 11.9 hp. Both pumps have a useful life of five years and will be sold at that time. (Remember 1 hp = 0.746 kW.) Pump A will use SL depreciation over five years with an estimated SV of zero. Pump B will use the MACRS depreciation method with a class life of three years. After five years, pump A has an actual market value of $400, and pump B has an actual market value of $200. Using the IRR method on the after-tax cash flows and a before-tax MARR of 20%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 30%. The cost of electricity is $0.05/kWh, and the pumps are subject to a study period of five years. Click the icon to view the GDS Recovery Rates (rk) for the 3-year property class. The IRR of the incremental investment is - 74 %. (Round to one decimal place.) More Info Year 1 2 3 4 GDS Recovery Rates (rk) 3-year Property Class 0.3333 0.4445 Print 0.1481 0.0741 Done - X
Transcribed Image Text:Individual industries will use energy as efficiently as it is economical to do so, and there are several incentives to improve the efficiency of energy consumption. To illustrate, consider the selection of a new water pump. The pump is to operate 800 hours per year. Pump A costs $2,000, has an overall efficiency of 83.7%, and it delivers 11.2 hp. The other available alternative, pump B, costs $800, has an overall efficiency of 43.06%, and delivers 11.9 hp. Both pumps have a useful life of five years and will be sold at that time. (Remember 1 hp = 0.746 kW.) Pump A will use SL depreciation over five years with an estimated SV of zero. Pump B will use the MACRS depreciation method with a class life of three years. After five years, pump A has an actual market value of $400, and pump B has an actual market value of $200. Using the IRR method on the after-tax cash flows and a before-tax MARR of 20%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 30%. The cost of electricity is $0.05/kWh, and the pumps are subject to a study period of five years. Click the icon to view the GDS Recovery Rates (rk) for the 3-year property class. The IRR of the incremental investment is - 74 %. (Round to one decimal place.) More Info Year 1 2 3 4 GDS Recovery Rates (rk) 3-year Property Class 0.3333 0.4445 Print 0.1481 0.0741 Done - X
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Assets
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics: Applications, Strategies an…
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS