Question

A diesel-powered generator is going to be replaced with a natural gas-powered generator. It will save the utility cost at about $34,000 per year, starting 4 years from now. At an interest rate of 8% per year, determine the present worth in year 0 of the projected savings that will occur in years 4 through 10.

Answer 1

The present worth of projected savings for replacing a diesel-powered generator with a natural gas-powered generator, from years 4 to 10 at an 8% interest rate, is calculated using a present worth analysis.

Step-by-step explanation:

The question inquires about the present worth of projected savings from switching to a natural gas-powered generator from a diesel-powered generator, with savings beginning in year 4 and continuing through year 10, at an 8% interest rate. This is a problem that involves understanding the time value of money, which falls under the subject of Engineering Economics. To calculate the present worth, one would perform a present worth analysis on each year's savings and then sum those values to get the total present worth of savings from year 4 to year 10.

To solve this, first, calculate the present value of each individual annual saving of $34,000 from year 4 to year 10 using the formula for present value PV = FV / (1 + i)n, where FV is the future value, i is the interest rate, and n is the number of years until the payment. Then, add these values to get the total present worth of savings.