Discussion:
It is estimated that the annual heat loss in a small factory is $12,000. Proposal 1 will reduce the heat loss by 68% and will cost $3,500. Proposal 2 will reduce the heat loss by 46% and will cost $2,200. For an interest rate of 12% and a lifetime of 10 years, which proposal should be selected?
Calculate your answer in three ways:
a. Using present worth on incremental investment
b. Using annual equivalent on incremental investment
c. Using IRR on incremental investment