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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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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!

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