Analyze a CSR capital investment proposal for Ganon Inc.Ganon Inc. is evaluating a proposal to replace its HID (high intensity discharge) lighting with LED (light emitting diode) lighting throughout its warehouse. LED lighting consumes less power and lasts longer than HID lighting for similar performance. The following information was developed:Line Item DescriptionValueHID watt hour consumption per fixture500 watts per hr.LED watt hour consumption per fixture300 watts per hr.Number of fixtures800Lifetime investment cost (in present value terms) to replace each HID fixture with LED$300Operating hours per day10Operating days per year300Metered utility rate per kilowatt-hour (kwh)*$0.12*Note: A kilowatt-hour is equal to 1,000 watts per hour.a. Determine the investment cost for replacing the 800 fixtures.fill in the blank 1 of 1$b. Determine the annual utility cost savings from employing the new energy solution.fill in the blank 1 of 1$c. Should the proposal be accepted? Evaluate the proposal using net present value, assuming a 15-year life and 8% minimum rate of return. (Click here to view Present Value of Ordinary Annuity.)fill in the blank 1 of 1$

There is a proposal to replace the HID lighting with LED lighting. The related information is provided below:HID watt hour consumption per fixture500 watts per hr.LED watt hour consumption per fixture300 watts per hr.Number of fixtures800Lifetime investment cost (in present value terms) to replace each HID fixture with LED$300Operating hours per day10Operating days per year300Metered utility rate per kilowatt-hour (kwh)*$0.12A kilowatt-hour = 1,000 watts per hourInvestment cost given is shown below:Number of fixtures800Lifetime investment cost (in present value terms) to replace each HID fixture with LED$300The investment cost for replacing the 800 fixtures is calculated as follows:Investment cost = Number of fixtures * Cost per fixtureInvestment cost = 800 * $300Investment cost = $240,000The total investment cost for replacing the 800 fixtures will be $240,000.The annual utility cost savings from employing the new energy solution is calculated as follows:Annual energy consumption of HID fixtures = Number of fixtures * HID watt hour consumption per fixture * Operating hours per day * Operating days per year / 1000Annual energy consumption of LED fixtures = Number of fixtures * LED watt hour consumption per fixture * Operating hours per day * Operating days per year / 1000Annual energy savings = Annual energy consumption of HID fixtures - Annual energy consumption of LED fixturesAnnual energy savings = 1,200,000 kwh - 720,000 kwhAnnual energy savings = 480,000 kwhAnnual utility cost savings = Annual energy savings * Metered utility rate per kilowatt-hourAnnual utility cost savings = 480,000 kwh * $0.12Annual utility cost savings = $57,600The annual utility cost savings from employing the new energy solution is $57,600.To evaluate the proposal using net present value, we need to calculate the present value of the annual utility cost savings over the 15-year life of the fixtures, and compare this with the investment cost.Present value of annual utility cost savings = Annual utility cost savings x PVAF for 15 years at 8%Present value of annual utility cost savings = $57,600 x 8.5594787Present value of annual utility cost savings = $493,025.97Net Present Value = Present value of annual utility cost savings - Investment costNet Present Value = $493,025.97 - $240,000Net Present Value = $253025.97Since the net present value is positive, the proposal should be accepted.a) The total investment cost for replacing the 800 fixtures will be $240,000.b) The annual utility cost savings from employing the new energy solution is $57,600.c) Net Present Value = $253025.97Since the net present value is positive, the proposal should be accepted.

Answered: Ganon Inc. is evaluating a proposal to…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Analyze a CSR capital investment proposal for Ganon Inc.

Ganon Inc. is evaluating a proposal to replace its HID (high intensity discharge) lighting with LED (light emitting diode) lighting throughout its warehouse. LED lighting consumes less power and lasts longer than HID lighting for similar performance. The following information was developed:

Line Item Description	Value
HID watt hour consumption per fixture	500 watts per hr.
LED watt hour consumption per fixture	300 watts per hr.
Number of fixtures	800
Lifetime investment cost (in present value terms) to replace each HID fixture with LED	$300
Operating hours per day	10
Operating days per year	300
Metered utility rate per kilowatt-hour (kwh)*	$0.12

*Note: A kilowatt-hour is equal to 1,000 watts per hour.

a. Determine the investment cost for replacing the 800 fixtures.
fill in the blank 1 of 1$

b. Determine the annual utility cost savings from employing the new energy solution.
fill in the blank 1 of 1$

c. Should the proposal be accepted?

Evaluate the proposal using net present value, assuming a 15-year life and 8% minimum rate of return. (Click here to view Present Value of Ordinary Annuity.)
fill in the blank 1 of 1$

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