Simon Manufacturing is conducting preliminary research into installing a geothermal heat pump to heat and cool its factories and offices. The initial cost of installing the new system is $245,000; however, Simon will save $35,000 annually on its heating and cooling costs. The system has an expected life of 15 years. What is the net present value (NPV)of the project, assuming a discount rate of 8%?

Question

Quizplus · Accepted Answer

The NPV is calculated by finding the present value of the savings over 15 years and subtracting the initial cost. The present value of the savings is $35,000 * [(1 - (1 + 0.08)^-15) / 0.08] = $299,565. Subtracting the initial cost of $245,000 gives an NPV of $54,565.

Simon Manufacturing Is Conducting Preliminary Research into Installing a Geothermal