The seasonal energy efficiency ratio (SEER) is 13 for a new heating and air conditioning system that costs $4,400 to install. A higher SEER (14) system is available for $5,200. The more efficient system with a SEER of 14 will save 10,000,000 Btu per year in energy consumption. Assume the cost per million Btu is $10.00. If the warranty on either system is 10 years, is the extra $800 for the more efficient system justified? The inflation-free (real) interest rate is 2% per year. What assumptions did you make in your analysis?
Calculate the internal rate o return.
Explanation of Solution
The assumption is that the cost of energy is remain the same for the analysis period of 10 years. Also it is assumes that the salvage value of the two system at end of the life time is zero.
Time period is denoted by n and the interest is denoted by i. The internal rate of return (i) between the two systems can be calculated as follows.
Substitute the value of ‘i’ as 4.3% by trial and error method in the above calculation. This makes the calculated value is equal to additional spending. Thus, it is verified that the IRR is 4.3%. Since the IRR is greater than the real interest rate. The additional spending is justified.
Want to see more full solutions like this?
Chapter 8 Solutions
Engineering Economy (17th Edition)
Additional Business Textbook Solutions
Principles of Economics, 7th Edition (MindTap Course List)
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Economics Today and Tomorrow, Student Edition
Econ Micro (book Only)
Macroeconomics (Book Only)
- The maintenance of a room air conditioner is expected to be P2,000 at the end of the first year and is expected to increase by P100 each year for the following 7 years. Assuming rate of interest is 6%, compute the equivalent uniform annual maintenance cost.arrow_forwardAn Oman multinational company is buying an asset from a Britain company for 1 million GBP and the payment to be made after 3 months. The company expects the Pound to go up in the future by the time deal is completed. So it decides to purchase an option at OMR 0.5187/GBP with a 7% premium. The actual rate after 3 months was found to be OMR 0.5391/GBP. What will be the profit made by the company on the execution of the option after 3 months? a. 10400 b. 20400 c. 11128 d. 12581 e. All the options are wrong Clear my choicearrow_forwardDetermine the ordinary simple interest on P10,000.00 for 9 months and 10 days if the rate of interest is 12%.arrow_forward
- Your firm is based in the UK, just received USD 825,000 from a customer in the U.S., and wants to convert the USD to GBP. The bank is quoting a spot rate of GBP/USD 1.2283 - 1.2425. How much will you receive in British pounds (GBP)? A. GBP 1,013,348 B. GBP 663,984 C. GBP 671,660 D. GBP 1,025,063arrow_forwardWhat is the annual interest rate if P265 is earned in four months on an investment of P15000??arrow_forwardTuition at a local college is currently $4,000 per year. If tuition rates are expected to increase at an annual rate of 3%, what will the annual tuition be 19 years from now?arrow_forward
- Solutions please for Q39,Q40,Q41,Q42,Q43??arrow_forwardSuppose that P400 is deposited each year into a bank account that pays 8% interest annually. If 12 payments are made into the account, How much would be accumulated in this fund by the end of the 12th year? The first payment occurs at time zero (now)arrow_forwardIf P8,000 is deposited in the bank each year for 10 years, how much annuity can a person get annually from the bank every year for 6 years starting 1 year after the 10th deposit is made. cost of money is 12%.arrow_forward
- Charlene plans to place an annual savings amount of A =$27,185 into a retirement program at the end of each year for 20 years starting next year. She expects to retire and start to draw a total of R =$60,000 per year one year after the twentieth deposit. Assume an effective earning rate of i =6% per year on the retirement investments and a long life. Determine and comment on the sensitivity of the size of the annual withdrawal R for variations in A and i a. Variation of ± 5% in the annual deposit A. b. Variation of ± 1% in the effective earning rate i, that is, ranging from 5% to 7% per yeararrow_forwardThe maintenance room of a room air conditioner is expected to be P2,000 at the end of the 1st year and is expected to increase by P100 each year for the following 7 years. Assuming rate of interest is 6%, compute the equivalent uniform annual maintenance cost. *In written solution pleasearrow_forwardIf P25,000 is invested now, P35,000 two years from now, and P45,000 four years from now (all at 4%), what will be the total amount in ten years?arrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education