A steam boiler is required as part of the design of a new plant. The types of fu

Question

A steam boiler is required as part of the design of a new plant. The types of fuel that can be used to ignite the boiler are natural gas, fuel oil, and coal. The cost of installation including all required controls is $40,000 for natural gas, $50,000 for fuel oil, and $120,000 for coal. In addition, the annual cost of fuel oil is $8,000 less than the annual cost of natural gas and $12,000 more than the annual cost of coal. If the boiler is to be utilized for 20 years and interest rate is 8%, determine the best alternative.

Explanation / Answer

Checking an annuity table the factor for 20 years at 8% is 9.81815 NG (40,000) +(8,000) *9.81815= (118,545) FO (50,000) Coal (120,000) + 12,000*9.81815= (2,182) Coal is the best alternative.

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