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.
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: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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