The system in an energy conservation option has a first cost of $25 $2,000 per year maintenance and saves $5,000 per year in utilities. This option will last 15 years with no salvage value. What is the 15-year life cycle cost assuming energy cost escalation of 4% annually, maintenance cost escalation 2% annually, and a 5% discount rate? What if the discount rate is 15%?

The system in an energy conservation option has a first cost of $25 $2,000 per year maintenance and saves $5,000 per year in utilities. This option will last 15 years with no salvage value. What is the 15-year life cycle cost assuming energy cost escalation of 4% annually, maintenance cost escalation 2% annually, and a 5% discount rate? What if the discount rate is 15%?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

The system in an energy conservation option has a first cost of $25,000. It requires
$2,000 per year maintenance and saves $5,000 per year in utilities. This option will last 15
years with no salvage value. What is the 15-year life cycle cost assuming energy cost
escalation of 4% annually, maintenance cost escalation 2% annually, and a 5% discount
rate? What if the discount rate is 15%?

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