An entrepreneurial electrical engineer has approached a large utility with a proposal that promises to reduce the utility’s power bill by at least 15% per year for the next 5 years through installation of patented surge protectors. The proposal states that the engineer will get $20,000 now and annual payments that are equivalent to 75% of the power savings achieved from the devices. Assuming the savings are the same every year at 15% and that the utility’s power bill is $1 million per year, what would be the equivalent uniform amount for years 1 to 5 of the payments to the engineer at an interest rate of 6% per year?
What will be an ideal response?
A = 20,000(A/P,6%,5) + 1,000,000(0.15)(0.75)
= 20,000(0.2374) + 112,500
= $117,248
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