Inflation


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You are contemplating an investment in an energy savings project for your warehouse. The initial cost for this is $50,000. It is expected that the device will save 1,000 gallons in heating fuel cost each year. The current price of heating fuel is $3.00 per gallon. It is expected that the real price of petrolum will increase by 5% per year.(real price is price above and beyond normal inflation.) If your firm’s real MARR is 10% per year, what is the present value (present worth) of this investment? Assume 10 year planning horizon and 3% normal inflation



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