A retail outlet is being designed in a strip mall in Nebraska. For this outlet, the installed fiberglass insulation to protectagainst heat loss in the winter and heat gain in the summer will cost an estimated $110,000. The annual savings inenergy due to the insulation will be $19,000 at EOY one in the 8-year life of the outlet, and these savings will increase by15% 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?NoO Yes(Round to the nearest dollar.)

Answered: The present equivalent of energy…

The present equivalent of energy savings is $. (Round to the nearest dollar.) Is the cost of the proposed amount of insulation justified?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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

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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