Standby power for water utility pumps and other electrical devices is provided b

Question

Standby power for water utility pumps and other electrical devices is provided by diesel-powered generators. As an alternative, the utility can use natural gas to power the generators, but it will be a few years before the gas is available at remote sites. The utility estimates that by switching to gas, it will save $22,000 per year, starting three years from now. At an interest rate of 8% per year, determine the present worth in year 0 of the projected savings that will occur in years 3 through 10.

Explanation / Answer

present worth in year 0 = 22,000/1.08^3 + 22,000/1.08^4 + 22,000/1.08^5 + 22,000/1.08^6 + 22,000/1.08^7 + 22,000/1.08^8 + 22,000/1.08^9 + 22,000/1.08^10 =$108,389.97

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