Answer:
Your firm wants to replace the furnace in the building with a more energy-efficient unit that has a two-year lifetime. Suppose the new furnace will cost $10,000 right now. In each year of operation, the new furnace will save the firm $5500 in energy expense. If the interest rate is 10%, the firm should not buy the new furnace because the net present value is -$454.54 negative.
Explanation:
interest rate = 10%
Net present value = -10000 + 5500/(1 + 10%) + 5500/(1 + 10%)2
NPV = - $ 454.54
The firm should not buy the new furnance (negative NPV) because the net present value is - $ 454.54
