Your firm spends $6,500 annually for electricity. Johnson Controls offers to install a new computer-controlled...
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Finance
Your firm spends $6,500 annually for electricity. Johnson Controls offers to install a new computer-controlled lighting system that will reduce electric bills by $1,000 in each of the next 5 years. Assume the cost savings are known with certainty and the interest rate is 10%.
- If the system costs $1,450 to install and $2,750 to dispose of at the end of 5 years, what is the NPV of the project? (Hint: $6,500 is not relevant for the decision. You can completely ignore it)
- Should the firm install the new lighting system? Why?
- What is the IRR of the project? (Hint: There might be multiple IRRs)
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