Please explain why the below scenario would be a viable investment.

A power plant management is considering an investment in increased efficiency of their plant, which costs $1.2 million and lasts for 10 years. During these period of time it will save $250,000 / year. The investment has no salvage value. The plant has an MARR of 13%.

NPVfuture = Initial cost + P/A* Annuity + P/F* Salvage Value

P/A = (1+13%)^10 - 1 / 13%(1+13%)^10

= 2.39456738992 / 2.81629783023

= 0.85025

P/F = 1/(1+13%)^10

= 1/3.39456738992

= 0.29459

So we need to solve the NPV,

NPVfuture = $1,200,000 + 0.85025*$250,000 + 0.29459*0

= $1,412,562.5

Answer rating: 100% (QA)

The scenario outlines an investment decision for a power plant aimed at increasing its efficiency Le... View the full answer