A mechanical engineer must recommend a new heating system to a commercial building owner. The owner intends to sell the building in 15 years. A gas fired furnace option has a design life of 5 years, an initial cost of $10,000, a replacement cost of $5,000 and annual operating costs of $3,500, but adds no value to the building when sold. A geothermal heat pump system has a design life of 10 years, an initial cost of $20,000, a replacement cost of $10,000, annual operating costs of $2,500, and increases the value of the building by $3,000, when it is sold at the end of year 15. Determine the PW of costs for the option the engineer should recommend at an interest rate of 6.2%. Express your answer in $ to the nearest $100.
A mechanical engineer must recommend a new heating system to a commercial building owner. The owner intends to sell the building in 15 years. A gas fired furnace option has a design life of 5 years, an initial cost of $10,000, a replacement cost of $5,000 and annual operating costs of $3,500, but adds no value to the building when sold. A geothermal heat pump system has a design life of 10 years, an initial cost of $20,000, a replacement cost of $10,000, annual operating costs of $2,500, and increases the value of the building by $3,000, when it is sold at the end of year 15. Determine the PW of costs for the option the engineer should recommend at an interest rate of 6.2%. Express your answer in $ to the nearest $100.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:A mechanical engineer must recommend a new heating system to a commercial building owner. The
owner intends to sell the building in 15 years. A gas fired furnace option has a design life of 5 years,
an initial cost of $10,000, a replacement cost of $5,000 and annual operating costs of $3,500, but
adds no value to the building when sold. A geothermal heat pump system has a design life of 10
years, an initial cost of $20,000, a replacement cost of $10,000, annual operating costs of $2,50o,
and increases the value of the building by $3,000, when it is sold at the end of year 15. Determine
the PW of costs for the option the engineer should recommend at an interest rate of 6.2%. Express
your answer in $ to the nearest $100.
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