You must decide which of the two wind turbines to purchase for a new wind farm your company is planning to build.

Question

Turbine A will initially cost $1,500,000 to install and is estimated to generate $290,000 per year of revenue. Turbine B will cost $1,800,000 initially but will generate $350,000 per year of revenue. Assuming a 2.5% annual interest rate and that both machines will last 20 years, which machine should be purchased? (hint Consider the future worth of these investments.)

1. Single Payment

Compound Annual Factor	P	F
Present Worth Factor	F	P

1. Uniform Series Payment

Sinking Fund Formula	F	A
Capital Recovery Formula	P	A
Compound Amount Formula	A	F
Present Worth Formula	A	P

Answer 1

To determine which turbine should be purchased, we need to compare the present worth of both investments. Since both turbines will last 20 years, we need to find the present worth of their respective revenue streams over 20 years, considering the initial cost of installation and the interest rate.

Based on the present worth analysis, Turbine B should be purchased as it has a higher present worth of revenue streams over 20 years compared to Turbine A.

The correct formula to be used is the Present Worth Formula.