Nippon Steel's expenses for heating and cooling a large manufacturing facility are expected to increase according to an arithmetic gradient beginning in year 2. If the cost is $550,000 this year (year 0) and will be $550,000 again in year 1, but then it is estimated to increase by $45,000 each year through year 12, what is the equivalent annual worth in years 1 to 12 of these energy costs at an interest rate of 11% per year? The equivalent annual worth is determined to be $
Nippon Steel's expenses for heating and cooling a large manufacturing facility are expected to increase according to an arithmetic gradient beginning in year 2. If the cost is $550,000 this year (year 0) and will be $550,000 again in year 1, but then it is estimated to increase by $45,000 each year through year 12, what is the equivalent annual worth in years 1 to 12 of these energy costs at an interest rate of 11% per year? The equivalent annual worth is determined to be $
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section: Chapter Questions
Problem 46P
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Question
![Nippon Steel's expenses for heating and cooling a large manufacturing facility are expected to increase according to an arithmetic
gradient beginning in year 2. If the cost is $550,000 this year (year 0) and will be $550,000 again in year 1, but then it is estimated
to increase by $45,000 each year through year 12, what is the equivalent annual worth in years 1 to 12 of these energy costs at an
interest rate of 11% per year?
The equivalent annual worth is determined to be $](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4fa378b4-515d-44b6-b8a6-81603afb9f37%2Ff944e98f-a89a-42df-8fae-7908c917e5de%2F8h61gxw_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Nippon Steel's expenses for heating and cooling a large manufacturing facility are expected to increase according to an arithmetic
gradient beginning in year 2. If the cost is $550,000 this year (year 0) and will be $550,000 again in year 1, but then it is estimated
to increase by $45,000 each year through year 12, what is the equivalent annual worth in years 1 to 12 of these energy costs at an
interest rate of 11% per year?
The equivalent annual worth is determined to be $
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
Step 1
Computation of Present Worth | |||
Year | Cash Flow ($) | PV Factor @11% | Discounted Cash Flows ($) |
(A) | (B) | (A) x (B) | |
0 | 550,000 | 1.0000 | 550,000 |
1 | 550,000 | 0.9009 | 495,495 |
2 | 595,000 | 0.8116 | 482,902 |
3 | 640,000 | 0.7312 | 467,968 |
4 | 685,000 | 0.6587 | 451,210 |
5 | 730,000 | 0.5935 | 433,255 |
6 | 775,000 | 0.5346 | 414,315 |
7 | 820,000 | 0.4817 | 394,994 |
8 | 865,000 | 0.4339 | 375,324 |
9 | 910,000 | 0.3909 | 355,719 |
10 | 955,000 | 0.3522 | 336,351 |
11 | 1,000,000 | 0.3173 | 317,300 |
12 | 1,045,000 | 0.2858 | 298,661 |
PW ($) = | 5,373,494 |
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