Managerial Economics: Applications, Strategy and Tactics 12th Edition by James McGuigan, Charles Moyer, Frederick Harris

Exercise 3

Larger-scale turbines increase the electricity more than proportionately to the increase in costs. A 1 megawatt turbine costs $2.5 million, with the remaining equipment costs changed, for a total required investment of $4 million to power approximately 760 households. Electricity revenue over 15 years rises to $7.2 million in discounted present value. What conversion factor allows cost recovery of this larger-scale turbine