You are contemplating an investment in an energy savings project for your wareho

Question

You are contemplating an investment in an energy savings project for your warehouse. The initial cost for this is $50,000. It is expected that the device will save 1,000 gallons in heating fuel cost each year. The current price of heating fuel is $3.00 per gallon. It is expected that the real price of petrolum will increase by 5% per year.(real price is price above and beyond normal inflation.) If your firm's real MARR is 10% per year, what is the present value (present worth) of this investment? Assume 10 year planning horizon and 3% normal inflation

Explanation / Answer

present worth of investment = -50000 + 1000*3*(1-(1.05/1.1)^10)/(0.1-0.05) = - $27680.56

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