A company is considering an external long-term contract offer that improve the e

Question

A company is considering an external long-term contract offer that improve the energy efficiency of their systems. The payment schedule has two large payments in the first years with continuing payments thereafter. The proposed schedule is $230,000 now, $120,000 six years from now, $30,000 every four years, and an annual amount of $8,000 beginning 15 years from now project save $31,000 in energy costs annually forent re of its unlimited life using the capitalized cost method at 5% per year, the present worth of Benefits minus Costs is closest to: O a. 60,000 b. 20,000 O c. 80,000 O d. 140,000

Explanation / Answer

interest rate = 5%

PW = -230000 -120000/1.056 -30000 x (1/1.054 + 1/1.058 + ...) -8000/1.0515 x (1 + 1/1.05 + ....) + 31000/1.05 + 31000/1.052 + ....

PW = 620000 -230000 - 89545.85 - 30000 x 4.64 - 8000 x 9.62 = $84284.32

Option c is correct

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