Aretail outlet is being designed in a strip mall in nebraska. for this outlet, the installed fiberglass insulation to protect against heat loss in the winter and heat gain in the summer will cost an estimated $90,000. the annual savings in energy due to the insulation will be $16,000 at eoy one in the 7-year life of the outlet, and these savings will increase by 15% each year thereafter. if the annual interest rate is 18%, is the cost of the proposed amount of insulation justified?

what is the present equivalent of energy savings?

The present equivalent of energy savings is $88,000 and since the amount is less than the cost of insulation, the cost of insulation is not justified.

Explanation:

the cost of installation is $90,000. the life of insulation is 7 years.

the interest rate, r is 0.18.

the cash flow series of energy savings is a geometric cash flow series. where the first cash flow , A is $16,000  and the geometric gradient is 0.15

The present equivalent of energy savings is given by:

P = A[(1+(1+g)^n(1+i)^-n)/(i-g)]

   = (16000)[(1+(1+0.15)^7(1+0.18)^-7)/(0.18-0.15)]

   = $88,000

Therefore, The present equivalent of energy savings is $88,000 and since the amount is less than the cost of insulation, the cost of insulation is not justified.

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

answer; commerce clearing house;