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    Net Present Value ,perpetual savings

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    Category: Economics
    Subject: Net Present Value
    Details: It costs $2600 to insulate a factory. Nest year, the fuel savings will be $220. EAch year after this, the cost of fuel is expected to rise by the rate g. If the discount rate is 12%, what rate of growth in fuel costs justifies going ahead with the insulation plan? (Hint: careul. Make sure that the rate of growth and the discount rate are aligned in terms of periodss.)

    © BrainMass Inc. brainmass.com December 24, 2021, 5:05 pm ad1c9bdddf
    https://brainmass.com/economics/economic-growth/net-present-value-perpetual-savings-27549

    SOLUTION This solution is FREE courtesy of BrainMass!

    This is case of perpetual savings from insulation of the factory. The value of perpetuity should be atleast equal to the investment to justify the investment.
    Thus, $2600 = $200 / (12%-g)
    g=4.30769%. For value of g equal to or greater than 4.30% the invetsment is justified.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 5:05 pm ad1c9bdddf>
    https://brainmass.com/economics/economic-growth/net-present-value-perpetual-savings-27549

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