ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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A retail outlet is being designed in a strip mall in Nebraska. For this outlet, the installed fiberglass insulation to protect
against heat loss in the winter and heat gain in the summer will cost an estimated $110,000. The annual savings in
energy due to the insulation will be $19,000 at EOY one in the 8-year life of the outlet, and these savings will increase by
15% each year thereafter. If the annual interest rate is 20%, is the cost of the proposed amount of insulation justified?
Click the icon to view the interest and annuity table for discrete compounding when i= 15% per year.
Click the icon to view the interest and annuity table for discrete compounding when ;=20% per year.
The present equivalent of energy savings is $
Is the cost of the proposed amount of insulation justified?
No
O Yes
(Round to the nearest dollar.)
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Transcribed Image Text:A retail outlet is being designed in a strip mall in Nebraska. For this outlet, the installed fiberglass insulation to protect against heat loss in the winter and heat gain in the summer will cost an estimated $110,000. The annual savings in energy due to the insulation will be $19,000 at EOY one in the 8-year life of the outlet, and these savings will increase by 15% each year thereafter. If the annual interest rate is 20%, is the cost of the proposed amount of insulation justified? Click the icon to view the interest and annuity table for discrete compounding when i= 15% per year. Click the icon to view the interest and annuity table for discrete compounding when ;=20% per year. The present equivalent of energy savings is $ Is the cost of the proposed amount of insulation justified? No O Yes (Round to the nearest dollar.)
Expert Solution
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Step 1: Introduce the concept of present equivalent.

Present equivalent  also known as present value refers to the current value of a future sum of money or stream of cash flows given a specified rate of return.

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