A process furnace upgrade costs $100,000 and will save $20,000 per year in fuel over its...
A process furnace upgrade costs $100,000 and will save $20,000 per year in fuel over its 10-year lifetime. Fuel prices are projected to escalate 8% per year over this period. Find the simple payback SP. Find the rate of return ROR.
Homework Answers
|
Year |
Cost |
Benefit |
Net Cash flow |
Cumulative Cash flow |
|
0 |
100000 |
-100000 |
||
|
1 |
20000.00 |
20000.00 |
-80000.00 |
|
|
2 |
18400.00 |
18400 |
-61600.00 |
|
|
3 |
20001.00 |
20001 |
-41599.00 |
|
|
4 |
18400.92 |
18400.92 |
-23198.08 |
|
|
5 |
20002.00 |
20002 |
-3196.08 |
|
|
6 |
18401.84 |
18401.84 |
15205.76 |
|
|
7 |
20003.00 |
20003 |
35208.76 |
|
|
8 |
18402.76 |
18402.76 |
53611.52 |
|
|
9 |
20004.00 |
20004 |
73615.52 |
|
|
10 |
18403.68 |
18403.68 |
92019.20 |
|
|
IRR |
=IRR(select net cash flow) 14% |
Simple Pay back period = Year of positive Cumulative cash flow+(Negative Cash flow value/Positive cash flow)
= 6+(-3196.08/20002)
= 5.84 years
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