A new furnace costs \$27,000 to install and will require ongoing maintenance

April 14, 2018

A new furnace costs \$27,000 to install and will require ongoing maintenanceexpenditures of \$1,500 per year. But, this furnace is far more fuel efficient than theold furnace and will reduce fuel consumption of heating oil by 2,400 gallons peryear. Heating oil this year will cost \$3.00/gallon. The price per gallon is expectedto increase for \$0.50/gallon per year for the next 3 years and then, stabilize for theforeseeable future. The furnace will last for 20 years, at which point it will need tobe replaced and it will have no salvage value. The discount rate is 8%.Requirements:a) What is the payback period for the project? Round your answer to one decimalplace (e.g., 3.2%) (2pts)b) What is the net present value of the project? Round your answer to the nearestwhole dollar (\$) (5pts)c) What is the IRR for the project? Round your answer to one decimal place (e.g.,3.2%) (3pts)NOTE: In your Excel spreadsheet, all calculations must be included.

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