1. A building owner is planning a renovation to an existing building, at an MARR of 10%. As part of this renovation, they have two options: a) Retain the current HVAC equipment, which has a current market value of $24,000. Its operating costs next year will be $7500, and these costs will increase by 35% each year. Its salvage value will decrease by 20% each year. b) Obtain a new, more energy-efficient HVAC system at a cost of $40,000. It will have operating costs of $7,000 in the first year, which will increase by 30% each year afterwards. Its salvage value will decrease by 24% each year. Do the following: a) Determine whether the current system should be replaced now. b) Determine the replacement strategy considering a 3-year service life. (
1. A building owner is planning a renovation to an existing building, at an MARR of 10%. As part of this renovation, they have two options: a) Retain the current HVAC equipment, which has a current market value of $24,000. Its operating costs next year will be $7500, and these costs will increase by 35% each year. Its salvage value will decrease by 20% each year. b) Obtain a new, more energy-efficient HVAC system at a cost of $40,000. It will have operating costs of $7,000 in the first year, which will increase by 30% each year afterwards. Its salvage value will decrease by 24% each year. Do the following: a) Determine whether the current system should be replaced now. b) Determine the replacement strategy considering a 3-year service life. (
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. A building owner is planning a renovation
to an existing building, at an MARR of 10%.
As part of this renovation, they have two
options: a) Retain the current HVAC
equipment, which has a current market
value of $24,000. Its operating costs next
year will be $7500, and these costs will
increase by 35% each year. Its salvage value
will decrease by 20% each year. b) Obtain a
new, more energy-efficient HVAC system at
a cost of $40,000. It will have operating
costs of $7,000 in the first year, which will
increase by 30% each year afterwards. Its
salvage value will decrease by 24% each
year. Do the following:
a) Determine whether the current system
should be replaced now.
b) Determine the replacement strategy
considering a 3-year service life. (
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