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a construction firm can achieve a $15,000 cost savings in year 1 and increasing by $2,000 each year for the next 5 years by converting their diesel engines to biodiesel fuel. at an interest rate of 15%, what is the present equivalent of the savings?



Answer :

19194.4 is the present equivalent of the savings for the given question

The equivalent annual worth of the savings will be calculated thus:

Annual cost savings in year 1 = $15000

Increase in annual cost savings = $2000

Project period = 5 years

Interest rate = 15%

Annual worth of savings = A + G(A/G, 15%, 5)

= 15000 + 2000(15,000/2000, 15%, 5)

= 15000 + 2000(7500, 0.15,5)

= 15000 + 2000(2.0972)

= 19194.4

Therefore, the annual worth of savings will be $19194.4

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