Question

consultant tells the factory supervisor that the lighting bill can be reduced to $8,000 a year if $50,000 is invested in new lighting in the building. If the new lighting system is installed, an incremental maintenance cost of $3,000 per year must be taken into account. The new lighting system has zero salvage value at the end of its life. If the old lighting system also has zero salvage value, and the new lighting system is estimated to have a life of 20 years, what is the net annual benefit for this investment in new lighting

Answer 1

$2,306.02

Step-by-step explanation:

two things are missing, so I looked for similar questions:

1. original lighting expenses = $20,000
2. MARR = 12%

initial investment = -$50,000

our annual cash flows = ($20,000 - $8,000) - $3,000 = $9,000

the PV of the cash flows = $9,000 x 7.4694 (PV annuity factor, 20 periods, 12%) = $67,224.60

we must calculate the NPV = -$50,000 + $67,224.60 = $17,224.60

net annual benefit = NPV / annuity factor = $17,224.60 / 7.4694 = $2,306.02