To reduce cooling electricity consumption in an industrial plant, it is proposed to install an absorption refrigeration system running on solar energy. The absorption system costs $300,000 and the operating and maintenance expenses are $8000 per year. It is estimated that this absorption system will save $27,500 per year from the electricity they save. The lifetime of the system is expected to be 20 years with an average annual inflation-adjusted interest rate of 4 percent. The system will have no salvage value after 20 years of its lifetime. Would you support this project from an economic point of view? How would you evaluate this project if the inflation-adjusted interest rate is 2 percent?
To reduce cooling electricity consumption in an industrial plant, it is proposed to install an absorption refrigeration system running on solar energy. The absorption system costs $300,000 and the operating and maintenance expenses are $8000 per year. It is estimated that this absorption system will save $27,500 per year from the electricity they save. The lifetime of the system is expected to be 20 years with an average annual inflation-adjusted interest rate of 4 percent. The system will have no salvage value after 20 years of its lifetime. Would you support this project from an economic point of view? How would you evaluate this project if the inflation-adjusted interest rate is 2 percent?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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To reduce cooling electricity consumption in an industrial plant, it is proposed to install an absorption refrigeration system running on solar energy. The absorption system costs $300,000 and the operating and maintenance expenses are $8000 per year. It is estimated that this absorption system will save $27,500 per year from the electricity they save. The lifetime of the system is expected to be 20 years with an average annual inflation-adjusted interest rate of 4 percent. The system will have no salvage value after 20 years of its lifetime. Would you support this project from an economic point of view? How would you evaluate this project if the inflation-adjusted interest rate is 2 percent?
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