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 $2,200, has an overall efficiency of 81.86 %, and it delivers 11.3 hp. The other available alternative, pump B, costs $800, has an overall efficiency of 45.1%, 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 $390, and pump B has an actual market value of $180. Using the IRR method on the after-tax cash flows and a before-tax MARR of 15%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 23%. The cost of electricity is $0.06/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%. (Round to one decimal place.) More Info Year 2 4 GDS Recovery Rates (r) 3-year Property Class 0.3333 0.4445

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 $2,200, has an overall efficiency of 81.86 %, and it delivers 11.3 hp. The other available alternative, pump B, costs $800, has an overall efficiency of 45.1%, 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 $390, and pump B has an actual market value of $180. Using the IRR method on the after-tax cash flows and a before-tax MARR of 15%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 23%. The cost of electricity is $0.06/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%. (Round to one decimal place.) More Info Year 2 4 GDS Recovery Rates (r) 3-year Property Class 0.3333 0.4445

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter21: Costs And The Supply Of Goods
Section: Chapter Questions
Problem 17CQ
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 $2,200, has an overall efficiency of 81.86%, and it delivers 11.3 hp. The other available alternative, pump B, costs $800, has an overall efficiency of 45.1%, 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 $390, and pump B has an actual market value of $180. Using the IRR method on the after-tax cash flows and a before-tax MARR of 15%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 23%. The cost of electricity is $0.06/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%. (Round to one decimal place.) More Info Year 1 2 3 4 GDS Recovery Rates (r) 3-year Property Class 0.3333 Print 4 0.4445 0.1481 0.0741 Done CB
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 $2,200, has an overall efficiency of 81.86%, and it delivers 11.3 hp. The other available alternative, pump B, costs $800, has an overall efficiency of 45.1%, 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 $390, and pump B has an actual market value of $180. Using the IRR method on the after-tax cash flows and a before-tax MARR of 15%, is the incremental investment in pump A economically justifiable? The effective income tax rate is 23%. The cost of electricity is $0.06/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%. (Round to one decimal place.) More Info Year 1 2 3 4 GDS Recovery Rates (r) 3-year Property Class 0.3333 Print 4 0.4445 0.1481 0.0741 Done CB
Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Expected Value
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
Economics: Private and Public Choice (MindTap Cou…
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Microeconomics: Private and Public Choice (MindTa…
Microeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506893
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS