# 30 Investment Criteria A new furnace for a small factory will cost $27,00 a year to install and will require ongoing maintenance expenditures of $1,500 a year. But it is far more fuel efficient than the old one and will reduce the compounding of heating oil by 2400 gallons per year. Heating oil this year will cost $3.00 per gallon; the price per gallon is expected to increase by .50 per year for the next 3 years and stabilize for the foreseeable future. The furnace will last for 20 years at which point it will need to be replaced and will have no salvage value. The discount rate id 8 %. What is the NPV of the investment in the furnace? What is the IRR? What is the payback period?
# 30 Investment Criteria A new furnace for a small factory will cost $27,00 a year to install and will require ongoing maintenance expenditures of $1,500 a year. But it is far more fuel efficient than the old one and will reduce the compounding of heating oil by 2400 gallons per year. Heating oil this year will cost $3.00 per gallon; the price per gallon is expected to increase by .50 per year for the next 3 years and stabilize for the foreseeable future. The furnace will last for 20 years at which point it will need to be replaced and will have no salvage value. The discount rate id 8 %. What is the NPV of the investment in the furnace? What is the IRR? What is the payback period?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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# 30 Investment Criteria
A new furnace for a small
- What is the NPV of the investment in the furnace?
- What is the IRR?
- What is the payback period?
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