Question

In: Finance

Air conditioning for a college dormitory will cost $2.8 million to install and $135,000 per year...

Air conditioning for a college dormitory will cost $2.8 million to install and $135,000 per year to operate at current prices. The system should last 12 years. The real cost of capital is 8%, and the college pays no taxes. What is the equivalent annual cost? (Enter your answer in dollars not in millions and round your answer to 2 decimal places.)

Equivalent annual cost

Solutions

Expert Solution

First, we will calculate the Net Present value of cash outflows:

Year Cash Flows ($) PV Factor @8.00% Present Value ($)
0         2,800,000.00 1.0000               2,800,000.00
1             135,000.00 0.9259                   125,000.00
2             135,000.00 0.8573                   115,740.74
3             135,000.00 0.7938                   107,167.35
4             135,000.00 0.7350                     99,229.03
5             135,000.00 0.6806                     91,878.73
6             135,000.00 0.6302                     85,072.90
7             135,000.00 0.5835                     78,771.20
8             135,000.00 0.5403                     72,936.30
9             135,000.00 0.5002                     67,533.61
10             135,000.00 0.4632                     62,531.12
11             135,000.00 0.4289                     57,899.19
12             135,000.00 0.3971                     53,610.36
NPV               3,817,370.53

Calculating Equivalent annual cost using the formula:

Where, NPV = $3817,370.53

r = Cost of Capital = 8%

n = no of years = 12

EAC = $ 506546.05

So, Equivalent Annual Cost = $ 506,546.05

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Air conditioning for a college dormitory will cost $2.4 million to install and $155,000 per year...
Air conditioning for a college dormitory will cost $2.4 million to install and $155,000 per year to operate. The system should last 16 years. The real cost of capital is 6%, and the college pays no taxes. What is the equivalent annual cost? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Equivalent annual cost            $
In an effort to determine the cost of air conditioning, a resident in College Station,TX, recorded...
In an effort to determine the cost of air conditioning, a resident in College Station,TX, recorded daily values of the variables Tavg = mean temperature Kwh = electricity consumption for the period from September 19 through November 4. tavg kwh tavg kwh tavg kwh tavg kwh 77.5 45 77.5 55 68 50 75 41 80 73 79 57 66.5 37 75.5 51 78 43 80 68 69 43 71.5 34 78.5 61 79 73 70.5 42 63 19 77.5 52...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT