A cooling, heating, and power (CHP) system was placed into operation for Southea
ID: 2793914 • Letter: A
Question
A cooling, heating, and power (CHP) system was placed into operation for Southeast Regional Hospital with 360 beds. The CHP system was part of a new 20,000 sq. ft. central utility plant that provided the 800,000 sq. ft. health-care facility with cooling, heating, and power. By centralizing all of the utilities in one location, the hospital accrued significant energy savings, as well as improved maintenance efficiency. The financial facts related to the project are summarized as follows:
Installed cost: $1 million
Annual energy cost savings: $971,000
Annual O&M costs: $147,000
Project service life: 14 years
Salvage value: $240,000
At an interest rate of 7%, what is the net savings per dollar invested?
The answer is 3.756, I need to know the process.
Explanation / Answer
Installed cost: $1 million
Annual O&M costs: $147,000
Annual energy cost savings: $971,000
Project service life: 14 years
Salvage value: $240,000
At an interest rate of 7%
Net Savings = -1,000,000 + (971,000-147,000)x{(1-(1+0.07)-14)/0.07} + 240,000/(1+0.07)14
= -1,000,000 + 824,000x8.7455 + 93,076
= -1,000,000 + 7,206,266 + 93,076
= 6,299,341
Net Value Addition Per Dollar Invested =$6,299,341/1,000,000 =$6.2993