A town in Wyoming wants to drill geothermal well to provide a district heating s

Question

A town in Wyoming wants to drill geothermal well to provide a district heating steam and hot water for its businesses and residences. After government subsidies, the capital investment for the well is $560,000 and the geothermal well will reduce natural gas consumption for steam and hot water production by $53,000 per year. The salvage value of the well is negligible. The simple payback period for the well is 10 years. If the MARR of the town is 8% and the life of the geothermal well is 28 years, what is the IRR for this project?

Explanation / Answer

IRR is 8.50%

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