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    A rural utility company provides standby power to pumping stations using diesel-powered generators. An alternative has arisen whereby the utility could use a combination of wind and solar power to run its generators, but it will be a few years before the alternative energy systems are available. The utility estimates that the new systems will result in savings of $15,000 per year for 3 years, starting 2 years from now, and $25,000 per years for 4 more years after that. At an interest rate of 8% per year, what is the equivalent annual worth (years 1-8) of the projected savings?

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    https://brainmass.com/economics/utility/calculating-equivalent-annual-worth-344388

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    A rural utility company provides standby power to pumping stations using diesel-powered generators. An alternative has arisen whereby the utility could use a combination of wind and solar power to run its generators, but it will be a few years before the alternative energy systems are available. The utility estimates that the new systems will result in savings of $15,000 per year for 3 years, starting 2 years from now, and $25,000 per years for 4 more years after that. At an interest rate of 8% per year, what is the equivalent annual worth (years 1-8) of the projected savings.
    Year Cash Flow Discounting Factor at 8% Discounted value
    1 $- 0.926 $-
    2 $15,000.00 0.857 $12,860.08
    3 $15,000.00 0.794 $11,907.48
    4 $15,000.00 0.735 $11,025.45
    5 $25,000.00 0.681 $17,014.58
    6 $25,000.00 0.630 $15,754.24
    7 $25,000.00 0.583 $14,587.26
    8 $25,000.00 0.540 $13,506.72

    PV $96,655.82
    PVIFA(8%,8) 5.747 (You can see these values from PVIFA tables at the end of standard text books)
    Equivalent Annual Cost $16,819.54.

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

    © BrainMass Inc. brainmass.com December 24, 2021, 9:06 pm ad1c9bdddf>
    https://brainmass.com/economics/utility/calculating-equivalent-annual-worth-344388

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