Question

A facility manager is evaluating the installation of inverter type airconditoning in his facilities (to replace his current non inverter type). the cost of the inverter air conditoning system is p 90,000. current electricity bill is averaging p 40,000 per month and the facility manager estimates that he will save 10% of this cost if he proceeds with the project. he thinks the new acu unit will be good for 5 years. calculate the

average payback period

Answer 1

The average payback period for the installation of an inverter air conditioning system that costs P 90,000 and saves 10% on a P 40,000 monthly energy bill will be approximately 22.5 months.

Step-by-step explanation:

The question pertains to calculating the average payback period for the installation of an inverter air conditioning unit, where the cost savings on electricity is estimated to be 10% of the current bill of P 40,000 per month. To determine the average payback period, we must calculate the total savings over the period of time the air conditioning unit is expected to last (5 years) and compare this to the initial investment cost (P 90,000).

The monthly savings is 10% of P 40,000, which is P 4,000. Over 5 years (60 months), the total savings would therefore be P 4,000 times 60, which equals P 240,000. The payback period is the time it takes for these savings to cover the initial cost of P 90,000. Dividing the initial cost by monthly savings gives us the payback period in months.

P 90,000 / P 4,000 per month = 22.5 months

Therefore, the average payback period for the investment in the new air conditioning unit is approximately 22.5 months, meaning that after this period, the facility manager will have recovered the investment through electricity savings.