A small company heats its building and spends 8000 per year

A small company heats its building and spends $8,000 per year on natural gas for this purpose. Cost increa of natural gas are expected to be 8% per year starting one year from now (i.e., the first cash flow is EO $8,640 at 15% per ye the planning horizon is 14 years, what is the total annual equivalent expense for furnace? The interest rate is 20% per year. Y one). Their maintenance on the gas furnace is $340 per year, and this expense is expected to increase by ar starting one year from now (i.e., the first cash flow for this expense is $391.00 at the EOY one). If operating and maintaining the Click the icon to view the interest and annuity table for discrete compounding when i: 8% per year. 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 total annual equivalent expense for operating and maintaining the furnace is thousands. (Round to two decimal places.)

Solution

Time n = 14 years

R = 20%

g1 = 8%

g2 = 15%

Present value of operating and maintenance cost = Present value of the operating cost + present value of the maintenance cost

Present value of operating and maintenance cost = (8640/(.20-.08))*(1- (1.08/1.20)^14) + (391/(.20-.15))*(1- (1.15/1.20)^14)

Present value of operating and maintenance cost = $59039.09

Let, equivalent uniform annual expenses = EUAC

Then,

EUAC = 59039.09/((1-1/1.2^14)/.2)

EUAC = $12805.17