A University needs to acquire a boiler for its restaurant. There are three possibilities for powering the boiler: natural gas, fuel oil or coal. A cost analysis shows that the cost of the boiler already installed, with all controls, would be minimal in the case of natural gas, $30,000; for fuel oil it would be $55,000 and for coal 180,000. In the case of using natural gas in place of fuel oil, the annual cost of fuel is increased by $7,500 annually. On the other hand, if coal is used instead of fuel oil, the annual cost will be reduced by $15,000. Assuming an interest rate of 8% per annum, an analysis period of twenty years, and no residual value, which facility is the most economical?
A University needs to acquire a boiler for its restaurant. There are three possibilities for powering the boiler: natural gas, fuel oil or coal. A cost analysis shows that the cost of the boiler already installed, with all controls, would be minimal in the case of natural gas, $30,000; for fuel oil it would be $55,000 and for coal 180,000. In the case of using natural gas in place of fuel oil, the annual cost of fuel is increased by $7,500 annually. On the other hand, if coal is used instead of fuel oil, the annual cost will be reduced by $15,000. Assuming an interest rate of 8% per annum, an analysis period of twenty years, and no residual value, which facility is the most economical?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 20P: The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting,...
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A University needs to acquire a boiler for its restaurant. There are three possibilities for powering the boiler: natural gas, fuel oil or coal. A cost analysis shows that the cost of the boiler already installed, with all controls, would be minimal in the case of natural gas, $30,000; for fuel oil it would be $55,000 and for coal 180,000. In the case of using natural gas in place of fuel oil, the annual cost of fuel is increased by $7,500 annually. On the other hand, if coal is used instead of fuel oil, the annual cost will be reduced by $15,000. Assuming an interest rate of 8% per annum, an analysis period of twenty years, and no residual value, which facility is the most economical?
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