The heat loss through the exterior walls of a certain poultry processing plant i
ID: 1149897 • Letter: T
Question
The heat loss through the exterior walls of a certain poultry processing plant is estimated to cost the owner $2,800 next year. A salesman from Superfiber Insulation, Inc., has told you, the plant engineer, that he can reduce the heat loss by 85% with the installation of$16,500 worth of Superfiber now. If the cost of heat loss rises by $170 per year (uniform gradient) after the next year and the owner plans to keep the present building for 15 more years, what would you recommend if the interest rate is 12% per year?
Explanation / Answer
Loss reduction = 0.85 x Cost
Cost of the machine = $16500
interest rate = 12% , time period = 15 years
PW = -16500 + 2380/(1 + 12%) + 2524.5/(1 + 12%)2 + ... + 4403/(1 + 12%)15
PW = $4611.32
Since, PW is positive, the machine should be installed.
Year Cost ($) Loss reduction ($) 1 2800 2380 2 2970 2524.5 3 3140 2669 4 3310 2813.5 5 3480 2958 6 3650 3102.5 7 3820 3247 8 3990 3391.5 9 4160 3536 10 4330 3680.5 11 4500 3825 12 4670 3969.5 13 4840 4114 14 5010 4258.5 15 5180 4403Related Questions
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