An agribusiness has the opportunity to invest in new energy saving equipment tha

Question

An agribusiness has the opportunity to invest in new energy saving equipment that will generate annual savings of $150,000 per year for the next 28 years. The equipment costs $535,185. The firm normally earns 12 percent on its capital investments.

determine the net present value (NPV) for this investment.

determine the benefit-cost ratio for this project.

determine the payback period for this investment.

determine the internal rate of return (IRR) for this project.

determine the equivalent annual cost (EAC)for this project.

Please show all work and calcuation for each of the above questions.

An agribusiness has the opportunity to invest in new energy saving equipment that will generate annual savings of $150,000 per year for the next 28 years. The equipment costs $535,185. The firm normally earns 12 percent on its capital investments.

Explanation / Answer

12% years Cash inflow/(cash outflow) 0 ($535,185) 1 ($535,185) 1-28 years $150,000 7.9844 $1,197,660 NPV=1197660-535185 $662,475 years Cash inflow/(cash outflow) 28% 0 ($535,185) 1 ($535,185) 1-28 years $150,000 3.5678 $535,170 NPV=(15) IRR= lower rate + lower rate NPV/lower rate NPV +higher rate NPV * difference in rates 27.99% Payback period 1 $150,000          15,000.00 2 $150,000        165,000.00 3 $150,000        315,000.00 4 $150,000        465,000.00 4+70185/150000 5 $150,000        615,000.00 4.4679 pay back period

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