Johnson Controls spent more than $2.5 million retrofitting a government complex

Question

Johnson Controls spent more than $2.5 million retrofitting a government complex and installing a computerized energy-management system for the State of Massachusetts. As a result, the state's energy bill dropped from an average $6 million a year to $3.5 million. Moreover, both parties will benefit from the 10-year life of the contract. Johnson recovers half the money it saved in reduced utility cost (about $1.2 million a year over 10 years); Massachusetts has more money to sped on other things. What is the rate of return realized by Johnson Controls in this energy-control system ?

Explanation / Answer

Reduced utility cost (about $1.2 million a year over 10 years) By this we can say the total amount they saved is $1.2*10 years = $12 million As Johnson recovers half the money so from 12 million he gel half means $6 million Now we calculate rate of return First Johnson Controls spent $2.5 million and they get 6million So the rate is return is 240% ($2.5 * 240% = 6million) or 2.4 ($2.5 * 2.4 = 6million) Note: If we divide 240/100 we get 2.4

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