Sophomore Clinic II

Series of Cash Flows Examples March 3, 2003

Problem 1:

Assume a medium-sized town now has a peak electrical demand of 105 megawatts (MW) and demand is increasing at an annual rate of 15%. Assume the generating capacity is now 240 MW.

  1. How soon will additional generating capacity be needed on-line?
  2. If the new generator is designed to take care of needs 5 years past the on-line date, what size should it be? Assume the present generator continues in service.

Problem 2:

You are given the following data:

The energy cost at present is 11cents/kWh. If energy costs increase 10% every year, compare total costs over 10,000 hours for a compact fluorescent and an incandescent.

Average usage of lamp per day = 5 hours

Compact / Incandescent
Watts / 20W / 75W
Light output (lumens) / 1200 / 1150
Energy use / 200kWh / 750 kWh
Energy costs / $ / $
Lamp life (hours) / 10,000 / 1,000
Lamp replacements / 0 / 9
Cost of lamp replacement / 0 / $
Original lamp cost / $22.00 / $0.75

Total cost for 10,000 hours $ $

Total dollars saved = $

Problem 3:

Maintenance costs for Rowan Hall’s HVAC system increases by $1000/year over the next five-year life of the equipment. The initial maintenance cost is $3000. The college has some left over money this year that can be saved for future use at an interest rate of 8% compounded annually. The college would like to utilize the left over moneys to cover the maintenance costs of the HVAC system. How much of the left over money should the college request to cover the 5-year future maintenance cost expenditure for the HVAC system.

Problem 4:

Rowan College of Engineering is considering purchasing a high-pressure water jet cutter. In addition to the initial purchase and installation costs, the college is worried about the machine’s maintenance costs. The maintenance costs of the machine tool are expected to be $1000 at the end of the first year of the machine’s life and increases 8% per year thereafter. The expected life of the machine tool is 15 years. The college would like to endow a maintenance fund for expected costs. If the endowment account earns 10% per year compounded annually, how much money must be initially deposited in the account?