Your company is environmentally conscious and is considering two heating options for a new research building. What you know about each option is below, and your company will use an annual interest rate (MARR) of 6% for this decision. Which is the lower cost option for the company?i Click the icon to view the additional information about the options.Click the icon to view the interest and annuity table for discrete compounding when the MARR is 3% per year.Click the icon to view the interest and annuity table for discrete compounding when the MARR is 6% per year.The PW of the Gas Heating Option is $ - 314,080`. (Round to the nearest dollar.)The PW of the Geothermal Heating Option is $ - 306,540'. (Round to the nearest dollar.)The lower cost alternative is the geothermal heating option. Gas HeatingOption: The initial equipment and installment of the natural gas system would cost $225,000right now. The maintenance costs of the equipment are expected to be $1,000 per year, starting next year,for each of the next 11 years. The energy cost is expected to be $6,000 starting next year and is expectedto rise by 4% per year for each of the next 11 years due to the price of natural gas increasing.Geothermal Heating Option: Because of green energy incentives provided by the government, thegeothermal equipment and installation are expected to cost only $190,000 right now, which is cheaper thanthe gas lines. There would be no energy cost with geothermal, but because this is a relatively newertechnology the maintenance is expected to be $13,000 per year, staring next year, for each of the next 20years.

MARR is the minimum acceptable rate of return that is used to analyze and find out the feasibility…

Your company is environmentally conscious and is considering two heating options for a new research building. What you know about each option is below, and your company will use an annual interest rate (MARR) of 6% for this decision. Which is the lower cost option for the company?

Your company is environmentally conscious and is considering two heating options for a new research building. What you know about each option is below, and your company will use an annual interest rate (MARR) of 6% for this decision. Which is the lower cost option for the company?

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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YOU ARE A FINANCIAL ANALYST FOR A COMPANY THAT IS CONSIDERING A NEW PROJECT. IF THE PROJECT IS ACCEPTED, IT WILL USE A FRACTION OF A STORAGE FACILITY THAT THE COMPANY ALREADY OWNS BUT CURRENTLY DOES NOT USE. THE PROJECT IS EXPECTED TO LAST 10 YEARS, AND THE ANNUAL DISCOUNT RATE IS 10% (COMPOUNDED ANNUALLY). YOU RESEARCH THE POSSIBILITIES, AND FIND THAT THE ENTIRE STORAGE FACILITY CAN BE SOLD FOR €100,000 AND A SMALLER (BUT BIG ENOUGH) FACILITY CAN BE ACQUIRED FOR €40,000. THE BOOK VALUE OF THE EXISTING FACILITY IS €60,000, AND BOTH THE EXISITING AND THE NEW FACILITIES (IF IT IS ACQUIRED) WOULD BE DEPRECIATED STRAIGHT LINE OVER 10 YEARS (DOWN TO A ZERO BOOK VALUE). THE CORPORATE TAX RATE IS 40%. DISCUSS WHAT IS THE OPPORTUNITY COST OF USING THE EXISTING STORAGE CAPACITY?
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What is the net present value of the investment in the car wash?

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