It is estimated that the insulation of steam pipes in a factory will reduce the fuel bill by as much as 20%. The cost of the insulation is P120,000, and the annual cost of taxes and insurance is 5% of the initial cost. Without the insulation, the annual fuel bill is P190,000. If the insulation is worthless after 6 years, and a minimum return is 12%, would it be worthwhile to invest in the insulation? Use the following methods: a) Present Worth Method; b) Future Worth Method; c) Annual Worth Method; d) Rate of Return; and e) Internal Rate of Return.
It is estimated that the insulation of steam pipes in a factory will reduce the fuel bill by as much as 20%. The cost of the insulation is P120,000, and the annual cost of taxes and insurance is 5% of the initial cost. Without the insulation, the annual fuel bill is P190,000. If the insulation is worthless after 6 years, and a minimum return is 12%, would it be worthwhile to invest in the insulation? Use the following methods: a) Present Worth Method; b) Future Worth Method; c) Annual Worth Method; d) Rate of Return; and e) Internal Rate of Return.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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It is estimated that the insulation of steam pipes in a factory will reduce the fuel bill by as much as 20%. The cost of the insulation is P120,000, and the annual cost of taxes and insurance is 5% of the initial cost. Without the insulation, the annual fuel bill is P190,000. If the insulation is worthless after 6 years, and a minimum return is 12%, would it be worthwhile to invest in the insulation? Use the following methods: a) Present Worth Method; b) Future Worth Method; c) Annual Worth Method; d)
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