A remotely located air sampling station can be powered by solar cells or by runn

Question

A remotely located air sampling station can be powered by solar cells or by running an electric line to the site and using conventional power. Solar cells will cost $19,500 to install and will have a useful life of 4 years with no salvage value. Annual costs for inspection, cleaning, etc. are expected to be $1,150. A new power line will cost $9,500 to install, with power costs expected to be $850 per year. Since the air sampling project will end in 4 years, the salvage value of the line is considered to be zero. At an interest rate of 15% per year, which alternative should be selected on the basis of a future worth analysis?

The future worth of solar cells is $  and that of electric line is $  .

(Click to select) (Solar cells, Electric line)should be selected on the basis of a future worth analysis.

Explanation / Answer

ANSWER:

1) FW of solar cells.

initial cost = $19,500

n = 4 years

annual costs = $1,150

i = 15%

pw of solar cells = initial cost + annual costs(p/a,i,n)

pw of solar cells = -19,500 - 1,150(p/a,15%,4)

pw of solar cells = -19,500 - 1,150 * 2.855

pw of solar cells = -19,500 - 3,283.25

pw of solar cells = -$22,783.25

fw of solar cells = pw of solar cells(f/p,i,n)

fw of solar cells = -22,783.25(f/p,15%,4)

fw of solar cells = -22,783.25 * 1.749

fw of solar cells = -$39,847.90

2) FW of electric line.

initial cost = $9,500

n = 4 years

annual costs = $850

i = 15%

pw of electric line = initial cost + annual costs(p/a,i,n)

pw of electric line = -9,500 - 850(p/a,15%,4)

pw of electric line = -9,500 - 850 * 2.855

pw of electric line = -9,500 - 2,426.75

pw of electric line = -$11,926.75

fw of electric line = pw of electric line(f/p,i,n)

fw of electric line = -11,926.75(f/p,15%,4)

fw of electric line = -11,926.75 * 1.749

fw of electric line = -$20,859.89

since the future worth of electric line is more then that of solar cells , therefore we will select electric line.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.