Problem 1 Statement A simple, direct space heating system is currently being used in a professional medical office complex. An upgraded "variable air-volume system" retrofit can be purchased and installed for $200,000 (investment cost). Its power savings in the future will be 500,000 kilo-Watt hours per year over its estimated life of 8 years. The cost of electricity is $0.10 per kilo-Watt hour. The firm's MARR is 15% per year and the salvage value of the system in 8 years is $20,000. Question 1 Use the "Intelligent Guess and Check Procedure" AND linear interpolation to calculate the IRR of this project. In your supporting work you should mention how you chose your different interest rates (for example, "I chose the MARR as my first guess" and "I tried a larger interest rate because my PW(current rate) > 0" or "I tried a smaller interest rate because my PW(current rate) < 0"). Also, clearly show the linear interpolation equation you used to solve for the IRR. Enter your answer as a percentage with two decimal places. For example, 10.92% would be entered in as 10.92
Problem 1 Statement A simple, direct space heating system is currently being used in a professional medical office complex. An upgraded "variable air-volume system" retrofit can be purchased and installed for $200,000 (investment cost). Its power savings in the future will be 500,000 kilo-Watt hours per year over its estimated life of 8 years. The cost of electricity is $0.10 per kilo-Watt hour. The firm's MARR is 15% per year and the salvage value of the system in 8 years is $20,000. Question 1 Use the "Intelligent Guess and Check Procedure" AND linear interpolation to calculate the IRR of this project. In your supporting work you should mention how you chose your different interest rates (for example, "I chose the MARR as my first guess" and "I tried a larger interest rate because my PW(current rate) > 0" or "I tried a smaller interest rate because my PW(current rate) < 0"). Also, clearly show the linear interpolation equation you used to solve for the IRR. Enter your answer as a percentage with two decimal places. For example, 10.92% would be entered in as 10.92
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Problem 1 Statement
A simple, direct space heating system is currently being used in a professional medical office complex. An upgraded "variable air-volume system" retrofit can be
purchased and installed for $200,000 (investment cost). Its power savings in the future will be 500,000 kilo-Watt hours per year over its estimated life of 8 years. The
cost of electricity is $0.10 per kilo-Watt hour. The firm's MARR is 15% per year and the salvage value of the system in 8 years is $20,000.
Question 1
Use the "Intelligent Guess and Check Procedure" AND linear interpolation to calculate the IRR of this project. In your supporting work you should mention how you
chose your different interest rates (for example, "I chose the MARR as my first guess" and "I tried a larger interest rate because my PW(current rate) > 0" or "I tried a
smaller interest rate because my PW(current rate) < 0"). Also, clearly show the linear interpolation equation you used to solve for the IRR.
Enter your answer as a percentage with two decimal places. For example, 10.92% would be entered in as 10.92
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