A certain fluidized-bed combustion vessel has an investment cost of $100,000, a

Question

A certain fluidized-bed combustion vessel has an investment cost of $100,000, a life of 10 years. and negligible market (resale) value Annual costs of materials, maintenance, and electric power for the vessel are expected to total $10.000. A major relining of the combustion vessel will occur during the fifth year at a cost of $35,000. If the interest rate is 12% per year, what is the lump-sum equivalent cost of this project at the present time? Click the icon to view the interest and annuity table for discrete compounding when i= 12% per year. The lump-sum equivalent cost of this project at the present time equals . (Round to the nearest dollar

Explanation / Answer

Solution:

Net Present value of the cash flows = -$ 100,000 - $ 76,361

NPV = - $ 176,361

The present value interest factor of the annuity = 3.1058

EAC =  $ 176,361 /  3.1058

EAC = $ 56,784.40

year cash flows discount rate Present value of cash flows 0 ($100,000) 1 ($10,000) 0.8929 ($8,929) 2 ($10,000) 0.7972 ($7,972) 3 ($10,000) 0.7118 ($7,118) 4 ($10,000) 0.6355 ($6,355) 5 ($45,000) 0.5674 ($25,533) 6 ($10,000) 0.5066 ($5,066) 7 ($10,000) 0.4523 ($4,523) 8 ($10,000) 0.4039 ($4,039) 9 ($10,000) 0.3606 ($3,606) 10 ($10,000) 0.322 ($3,220) ($76,361)

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