At NYIT in 1993 a 100ton electric A/C system (electric driven compressor) with a
ID: 1192041 • Letter: A
Question
At NYIT in 1993 a 100ton electric A/C system (electric driven compressor) with a 100ton natural gas absorption system. Electric then was $.12/kwh and the natural gas unit was expected to half the energy cost.
Other date is listed below. Make a financial analysis and decide if a replacement is worth it.
Lifespan of electric system=10 years and salvage S=0; Lifespan of the absorption system is 20 years and S=0(even after 10years)
Energy savings = 50% of electric; Maintenance Cost/yr, gas $6000/yr: Initial cost of electric=0 (sunk cost), gas $60,000 and the installation is additional. $20,000. Gov’t funding is 30% of the initial cost. The interest rate is 6% and the air-conditioning system operates on average 1000hrs/yr. The may assume any other unknown factors.
On a quantitative basis is the switch justified. Work the problem out either on a present value basis for 10 years or annuitized cost per year for the same time period.
Explanation / Answer
Working Notes:
1) Here, the conversion factor from Ton to KWH is not mentioned. So I'm assuming the closest conversion possible: Refridgeration-Tons to KWH.
100 Tons = 351.69 Kilo-watts
So, annual consumption = 1,000 hours x 351.69 = 351,690 kwh
2) annual electricity cost of Electric = 351,690 kwh x $0.12 per kwh = $42,203
Annual electricity cost of Gas = 351,690 kwh x $0.06 per kwh = $21,102
3) Company-paid initial cost of gas = $60,000 x 70% = $42,000
Total year 0 cost for Gas = $42,000 + $20,000 (Installation cost) = $62,000
4) Comments include the annual maintenance cost of electric as $2,000 which is omitted from original question. This data is incorporated in the answer.
The PV computations are as follows. Since PV of total costs is higher foe gas than for electric, the Gas model should not be chosen.
ELECTRIC Year Initial cost ($) Annual maintenance ($) Electricity Cost ($) Total Annual cost ($) Discount Factor @6% Discounted annual cost ($) 0 0 1.0000 0 1 2,000 42,203 44,203 0.9434 41,701 2 2,000 42,203 44,203 0.8900 39,341 3 2,000 42,203 44,203 0.8396 37,114 4 2,000 42,203 44,203 0.7921 35,013 5 2,000 42,203 44,203 0.7473 33,031 6 2,000 42,203 44,203 0.7050 31,161 7 2,000 42,203 44,203 0.6651 29,398 8 2,000 42,203 44,203 0.6274 27,734 9 2,000 42,203 44,203 0.5919 26,164 10 2,000 42,203 44,203 0.5584 24,683 PV = 3,25,338 GAS Year Initial cost ($) Annual maintenance ($) Electricity Cost ($) Total Annual cost ($) Discount Factor @6% Discounted annual cost ($) 0 62,000 1.0000 62,000 1 6,000 21,102 27,102 0.9434 25,568 2 6,000 21,102 27,102 0.8900 24,121 3 6,000 21,102 27,102 0.8396 22,755 4 6,000 21,102 27,102 0.7921 21,467 5 6,000 21,102 27,102 0.7473 20,252 6 6,000 21,102 27,102 0.7050 19,106 7 6,000 21,102 27,102 0.6651 18,024 8 6,000 21,102 27,102 0.6274 17,004 9 6,000 21,102 27,102 0.5919 16,042 10 6,000 21,102 27,102 0.5584 15,134 11 6,000 21,102 27,102 0.5268 14,277 12 6,000 21,102 27,102 0.4970 13,469 13 6,000 21,102 27,102 0.4688 12,706 14 6,000 21,102 27,102 0.4423 11,987 15 6,000 21,102 27,102 0.4173 11,309 16 6,000 21,102 27,102 0.3936 10,669 17 6,000 21,102 27,102 0.3714 10,065 18 6,000 21,102 27,102 0.3503 9,495 19 6,000 21,102 27,102 0.3305 8,958 20 6,000 21,102 27,102 0.3118 8,451 PV = 3,72,858Related Questions
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