A remotely situated fuel cell has an installed cost of $2,800 and will reduce ex

Question

A remotely situated fuel cell has an installed cost of $2,800 and will reduce existing surveillance expenses by $360 per year for nine years. The border security agency's MARR is 9% per year. a. What is the minimum salvage (market) value after nine years that makes the fuel cell worth purchasing? b. What is the fuel cell's IRR if the salvage value is negligible? Click the icon to view the interest and annuity table or discrete compounding when the MARR is 9% per year. a. The minimum salvage (market) value is (Round to the nearest cent.) b. The fuel cell IRR is | %. (Round to two decimal places.)

Explanation / Answer

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0 1 2 3 4 5 6 7 8 9 Initial investment -2800 Cost savings 360 360 360 360 360 360 360 360 360 Salvage value 1393.73 Free cash Flow -2800 360 360 360 360 360 360 360 360 1753.73 Marr rate 9% PV of Cash flows till 8 years $2,158.29 For calculating minimum salvage value we need to calculate for NPV =0 PV of all cash flows from cost savings) till 9 years + ( salvage value)/(1+Marr)^9 - Initial investment =0 Salvage Value =[ (Initial Investment - Pv of all cash flow from cost savings)]*(1+MARR)^9 Salvage Value = (2800 - 2158.29)* (1+9%)^9 Salvage value 1393.73 0 1 2 3 4 5 6 7 8 9 Initial investment -2800 Cost savings 360 360 360 360 360 360 360 360 360 Salvage value 0.00 Free cash Flow -2800 360 360 360 360 360 360 360 360 360.00 IRR Using Excel function 3% (=IRR(All Cash flows) the rateat which NPV = 0 whensalvage vallue =0

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