At NYIT in 1993 a 100ton electric A/C system (electric driven compressor) with a
ID: 2710451 • 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
Replacement is worth if adopted for 20 year span, If we are looking replacement for 10 year horizon, we are putting excess investment of $21,839.48 (Present Value) but for 20 year span if all the cost factors remain same, replacement is worth.
Cost Analysis
100ton electric A/C system
100ton natural gas absorption system
Lifespam
10 Year
20 year
Salvage Value
$0.00
$0.00
Maintenance Cost
$2,000.00
$6,000.00
Initial cost
$0.00
$60,000.00
Installation
$0.00
$20,000.00
Govt Funding
$18,000.00
PV of Operating Cost for 10 Year 6%
$88,321.04
$44,160.52
Cost of the project for 10 Year
$90,321.04
$112,160.52
PV of Operating Cost for 20 Year 6%
$137,639.05
$68,819.53
Cost of the project for 20 Year
$139,639.05
$136,819.53
Operating Cost Every year
Per Unit cost (1 Ton consums 1 Kw)
$0.12 Per Kw
$0.06 Per Kw
Cost for 100 Ton
$12.00
$6.00
Annual Cost (1000 Hr Usage)
$12,000.00
$6,000.00
Cost Analysis
100ton electric A/C system
100ton natural gas absorption system
Lifespam
10 Year
20 year
Salvage Value
$0.00
$0.00
Maintenance Cost
$2,000.00
$6,000.00
Initial cost
$0.00
$60,000.00
Installation
$0.00
$20,000.00
Govt Funding
$18,000.00
PV of Operating Cost for 10 Year 6%
$88,321.04
$44,160.52
Cost of the project for 10 Year
$90,321.04
$112,160.52
PV of Operating Cost for 20 Year 6%
$137,639.05
$68,819.53
Cost of the project for 20 Year
$139,639.05
$136,819.53
Operating Cost Every year
Per Unit cost (1 Ton consums 1 Kw)
$0.12 Per Kw
$0.06 Per Kw
Cost for 100 Ton
$12.00
$6.00
Annual Cost (1000 Hr Usage)
$12,000.00
$6,000.00
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