A construction firm can achieve a $15,000 cost savings in Year 1, increasing by $3000 each year for the next 5 years, by convert

Question

3 years ago

6

ing their diesel engines for biodiesel fuel. At an interest rate of 15%, what is the equivalent annual worth of the savings?

1 answer:

Aleksandr-060686 [28] · Answer 1 · 2022-04-06T10:56:48+03:00

Answer: $21291.6

Explanation:

The equivalent annual worth of the savings will be calculated thus:

Annual cost savings in year 1 = $15000

Increase in annual cost savings = $3000

Project period = 6 years

Interest rate = 15%

Annual worth of savings = A + G(A/G, 15%, 6)

= 15000 + 3000(15,000/3000, 5%, 6)

= 15000 + 3000(5000, 0.15, 6)

= 15000 + 3000(2.0972)

= 15000 + 6291.6

= 21291.6

Therefore, the annual worth of savings will be $21291.6