NPV and Heat & Mass Transfer, Cengel, 5th Ed, Chp 3. 1. NPV Analysis, 4%yr Incre
ID: 2820240 • Letter: N
Question
NPV and Heat & Mass Transfer, Cengel, 5th Ed, Chp 3. 1. NPV Analysis, 4%yr Increase for Lab Maintenance, NPV-0 reqd 11.13 The Mechanical Engineering and Engineering Mechanics department of at an initial cost of $200 000. Annual operating cost: $2000; useful life: Michigan Technological University set up a brand new energy laboratory 10 years; end-of-useful-life salvage value: $50 000. Every semester 130 students are required to take the lab with an associated fee. The academic year has two semesters and the number of students in each semester is assumed to be the same. A fund is to be set up to replace the laboratory at the end of 10 years of its useful life. To provide the capital for the replacement, a deposit will be made at the end of each year of the collected fees less operating costs to that fund. Market interest rate is 6%. The cost of maintenance is to be escalated at 4% annually. The capital required for the replacement of the equipment is estimated to be $500 000 in year 10. Calculate the lab fee required. Assume a fixed fee amount for the next 10 years.Explanation / Answer
Answer:
Let the net amount deposited at the end of every year be 'x' where x = collected fee - operating cost
Future Value of these equal deposits at end of 10 years should be 4,50,000
so
x*(1.06)^9 + x*(1.06)^8 + x*(1.06)^7 +......+x*(1.06)^2 + x*(1.06)^1 + x = 4,50,000
13.3667 x = 4,50,000
x = 33665
x = collected fee - operating cost
33665 = collected fee - 2000
collected fees = 35665
Now Total 130*2 = 260 people pays the fee every year
Fee per student = 35665/130 = $137 per student
Funds Required at the end of 10 years 500000 Salvage Value of old equipment (50000) Deposit Value required at the end 450000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.