Question

A home fuel cell is a residential-scaled energy system based on fuel cell technology. Fuel cells are able to fulfill both the electrical and heat demands for a house. The initial cost of a Panasonic home fuel cell is $30,000. A homeowner will finance a system at a finance rate of 10% per year over a three-year period. A down payment of ten percent is required. The operating cost of the fuel cell is expected to be $3,500 in the first year of operation with an increase in cost of five percent per year over the life of the fuel cell. A major maintenance cost of $5,000 is required after four years of use. The life of the fuel cell is estimated to be eight years. After eight years, the fuel cell will have to be removed by a certified technician. The disposal cost will be $2,500. The homeowner has established a MARR of 6% per year.

a. Compute the finance cost per year.

b. Present an amortization chart for this financial arrangement. Include the amount of interest charged for each year, the amount of the payment which pays down the principal and the balance owed for each year of the loan.

c. Compute the amount of money that the homeowner would have to pay if they decided to pay off the loan after making two years of payments.

d. Assume that the homeowner will not pay off the loan after two years. Compute the annual savings in fuel costs that the homeowner would have to realize in order to breakeven on their investment over the eight year life of the fuel cell.

Answer 1

Initial Cost	30,000
Down Payment	3,000
Finance rate	10%	for three years
Annual Operating Cost	-3,500	increase 5% p.a
Major cost	5,000	at the end of 4 year
Disposal cost	2,500	at the end of eight year
MARR	6%
Installment=((30000-3000)*10%*(1+10%)^3)/((1+10%)^3-1)				10,857.10
a. Finance Cost per year
Year	Finance Cost	Interest Calculation
1	2,700.00	27000*10%
2	1,884.29	18842.9*10%
3	987.01	9870.09*10%
b. Amortisation Chart
Year	Installement	Interest	Principal pay.	Balance
0				27,000.00
1	10,857.10	2,700.00	8,157.10	18,842.90
2	10,857.10	1,884.29	8,972.81	9,870.09
3	10,857.10	987.01	9,870.09	0.00
Total		5,571	27,000
c.
$ 9,870.09 would be paid if they decided to pay off loan after making two years payment
d.
	Initial Cost	30,000
	Down Payment	3,000
	Finance rate	10%	for three years
	Annual Operating Cost	-3,500	increase 5% p.a
	Major cost	5,000	at the end of 4 year
	Disposal cost	2,500	at the end of eight year
	MARR	6%
Year	0	1	2	3	4	5	6	7	8
Initial Outflow	30,000.00
Annual Operating Cost		3,500.00	3,675.00	3,858.75	4,051.69	4,254.27	4,466.99	4,690.33	4,924.85
Major Cost					5,000.00
Disposal Cost									2,500.00
Interest Cost		2,700.00	1,884.29	987.01
Total Outflow	30,000.00	6,200.00	5,559.29	4,845.76	9,051.69	4,254.27	4,466.99	4,690.33	7,424.85
Discount Rate	1.00000	0.94340	0.89000	0.83962	0.79209	0.74726	0.70496	0.66506	0.62741	7.20979
Discount Value of outflow	30,000.00	5,849.06	4,947.75	4,068.59	7,169.78	3,179.04	3,149.05	3,119.34	4,658.44	66,141.05
Equivalent annual cost (EUAC) =66141.05/7.20979			9,173.78
Annual Saving Required=9,173.78 to achive break even