Question

4-57 A construction firm can achieve a $15,000 cost sav G ings in Year 1 and increasing by $2000 each year for the next 5 years by converting their diesel engines for biodiesel fuel. (a) At an interest rate of 15%, what is the equivalent annual worth of the savings? (b) What is biodiesel fuel and why is it considered green energy?

Answer 1

(a) Calculate the sum of present worth as follows: PV = Savings (P/F,;%.n) =15,000 (P/F.15%.1)+17.000(P/F 15%.2)+19.000(P/F.15%3)+21,000 (P/F 15%. 4) +23.000(P/F.15%.5) +25,000(P/F.15%.6) =15,000(0.8696) +17,000(-7561)+19.000(0.6575)+21,000(0.5718) + 23.000(0.4972) +25,000 (0.4323) = 13,044 +12,853.70+12.492.50+12,007.80+11.435.60+10.807.50 = 72.641.10 Now, equivalent annual worth would be: Equivalent Annual Worth = 72,641.10%-15 1:15) =10.896.165*2331 (1.15) - 1 =19.194.46 Thus, the equivalent annual worth of the savings would be $19,194.46. (b) Biodiesel fuel is the fuel based on the vegetable oil or animal fats and is made of the chemically reacting lipids. Since biodiesel fuel is made from the plants and animals extracts, these are considered to be green.