Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
Textbook Question
Book Icon
Chapter 8, Problem 1P

The seasonal energy efficiency ratio (SEER) is 13 for a new heating and air conditioning system that costs $4,400 to install. A higher SEER (14) system is available for $5,200. The more efficient system with a SEER of 14 will save 10,000,000 Btu per year in energy consumption. Assume the cost per million Btu is $10.00. If the warranty on either system is 10 years, is the extra $800 for the more efficient system justified? The inflation-free (real) interest rate is 2% per year. What assumptions did you make in your analysis?

Expert Solution & Answer
Check Mark
To determine

Calculate the internal rate o return.

Explanation of Solution

The assumption is that the cost of energy is remain the same for the analysis period of 10 years. Also it is assumes that the salvage value of the two system at end of the life time is zero.

Time period is denoted by n and the interest is denoted by i. The internal rate of return (i) between the two systems can be calculated as follows.

Additional spending=Saving Btu×Cost per Btu((1+i)n1i(1+i)n)800=10,000,000×101,000,000((1+i)101i(1+i)10)   

Substitute the value of ‘i’ as 4.3% by trial and error method in the above calculation. This makes the calculated value is equal to additional spending. Thus, it is verified that the IRR is 4.3%. Since the IRR is greater than the real interest rate. The additional spending is justified.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Consider the figure. A perfectly price-discriminating monopolist will produce ○ A. 162 units and charge a price equal to $69. ○ B. 356 units and charge a price equal to $52 for the last unit sold only. OC. 162 units and charge a price equal to $52. OD. 356 units and charge a price equal to the perfectly competitive price. Dollars per Unit $69 $52 MR 162 356 Output MC D
The figure at right shows the demand line, marginal revenue line, and cost curves for a single-price monopolist. Now suppose the monopolist is able to charge a different price on each different unit sold. The profit-maximizing quantity for the monopolist is (Round your response to the nearest whole number.) The price charged for the last unit sold by this monopolist is $ (Round your response to the nearest dollar.) Price ($) 250 225- 200- The monopolist's profit is $ the nearest dollar.) (Round your response to MC 175- 150 ATC 125- 100- 75- 50- 25- 0- °- 0 20 40 60 MR 80 100 120 140 160 180 200 Quantity
The diagram shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. At its profit-maximizing level of output, it will generate a deadweight loss to society represented by what? A. There is no deadweight loss generated. B. Area H+I+J+K OC. Area H+I D. Area D + E ◇ E. It is not possible to determine with the information provided. (...) 0 Price 0 m H B GI A MR MC D Outp
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Macroeconomics
Economics
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Microeconomics
Economics
ISBN:9781337617406
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co