A retrofitted heating system is being considered for an office building. The system can be purchased and installed for $ (501,000), and it will save an estimated (101,000) kilowatt-hours (kWh) of electric power each year over a 6-year period. A kilowatt-hour of electricity costs $1.164. The market value (MV) of the system will be $ (8,100) at the end of six years, and the annual operating and maintenance expenses (O&M) for the system are $ (5,100). MARR is 15% per year. (a) Use the conventional benefit-cost (B/C ratio) for Present Worth method to make a recommendation. (i) Compute the conventional B/C ratio. Round your answer to 2 decimal places. (ii) Should this system be purchased? Why? (b) Use the modified benefit-cost (B/C ratio) for Present Worth method to make a recommendation. (i) (ii) Compute the modified B/C ratio. Round your answer to 2 decimal places. Should this system be purchased? Why? (c) Assume that the electricity costs will increase at the inflation rate of 3% per year. Compute the conventional B/C ratio. Round your answer to 2 decimal places. Should this system be purchased? Why? (i) (ii)
A retrofitted heating system is being considered for an office building. The system can be purchased and installed for $ (501,000), and it will save an estimated (101,000) kilowatt-hours (kWh) of electric power each year over a 6-year period. A kilowatt-hour of electricity costs $1.164. The market value (MV) of the system will be $ (8,100) at the end of six years, and the annual operating and maintenance expenses (O&M) for the system are $ (5,100). MARR is 15% per year. (a) Use the conventional benefit-cost (B/C ratio) for Present Worth method to make a recommendation. (i) Compute the conventional B/C ratio. Round your answer to 2 decimal places. (ii) Should this system be purchased? Why? (b) Use the modified benefit-cost (B/C ratio) for Present Worth method to make a recommendation. (i) (ii) Compute the modified B/C ratio. Round your answer to 2 decimal places. Should this system be purchased? Why? (c) Assume that the electricity costs will increase at the inflation rate of 3% per year. Compute the conventional B/C ratio. Round your answer to 2 decimal places. Should this system be purchased? Why? (i) (ii)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...
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