At NYIT in 1993 a 100ton electric A/C system (electric driven compressor) with a
ID: 1192187 • 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,Electric $2000/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
Electric System Gas System
Intitial cost 0 $42,000 (=$60,000 - 30% of 60,000)
Installation 0 $20,000
Maintenance cost $2000 per year $6,000 per year
Enerygy cost $120 per year $60 per year
(=1000×0.12) (=1000×0.06)
Lifespan 10 years 20 years
Electric system
The uniform annual cost of electric system is $2,120 (=$2,000 + $120).
Gas system
Calculate the present worth of cost.
PWC = $42,000 + $20,000 + $6,060 (P/A, 6%, 20)
= $62,000 + $6,060 (11.470) = $131,508.20
Calculate the equivalized uniform annual cost.
EUAC = $131,508.20 (A/P, 6%, 20) = $131,508.20 (0.0872) = $11,467.52
Since $11,467.52 > $2,120, the switch is not recommended.
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