A retrofitted heating system is being considered for an office building. The system can be purchased and installed for $ (501,000), and it will save an estimated (101,000) kilowatt-hours (kWh) of electric power each year over a 6-year period. A kilowatt-hour of electricity costs $1.164. The market value (MV) of the system will be $ (8,100) at the end of six years, and the annual operating and maintenance expenses (O&M) for the system are $ (5,100). MARR is 15% per year. (a) Use the conventional benefit-cost (B/C ratio) for Present Worth method to make a recommendation. (i) Compute the conventional B/C ratio. Round your answer to 2 decimal places. (ii) Should this system be purchased? Why? (b) Use the modified benefit-cost (B/C ratio) for Present Worth method to make a recommendation. (i) (ii) Compute the modified B/C ratio. Round your answer to 2 decimal places. Should this system be purchased? Why? (c) Assume that the electricity costs will increase at the inflation rate of 3% per year. Compute the conventional B/C ratio. Round your answer to 2 decimal places. Should this system be purchased? Why? (i) (ii)
A retrofitted heating system is being considered for an office building. The system can be purchased and installed for $ (501,000), and it will save an estimated (101,000) kilowatt-hours (kWh) of electric power each year over a 6-year period. A kilowatt-hour of electricity costs $1.164. The market value (MV) of the system will be $ (8,100) at the end of six years, and the annual operating and maintenance expenses (O&M) for the system are $ (5,100). MARR is 15% per year. (a) Use the conventional benefit-cost (B/C ratio) for Present Worth method to make a recommendation. (i) Compute the conventional B/C ratio. Round your answer to 2 decimal places. (ii) Should this system be purchased? Why? (b) Use the modified benefit-cost (B/C ratio) for Present Worth method to make a recommendation. (i) (ii) Compute the modified B/C ratio. Round your answer to 2 decimal places. Should this system be purchased? Why? (c) Assume that the electricity costs will increase at the inflation rate of 3% per year. Compute the conventional B/C ratio. Round your answer to 2 decimal places. Should this system be purchased? Why? (i) (ii)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![A retrofitted heating system is being considered for an office building. The system can be
purchased and installed for $ (501,000), and it will save an estimated (101,000) kilowatt-hours
(kWh) of electric power each year over a 6-year period. A kilowatt-hour of electricity costs
$1.164.
The market value (MV) of the system will be $ (8,100) at the end of six years, and the annual
operating and maintenance expenses (O&M) for the system are $ (5,100).
MARR is15% per year.
(a) Use the conventional benefit-cost (B/C ratio) for Present Worth method to make a
recommendation.
(i)
(ii)
Compute the conventional B/C ratio. Round your answer to 2 decimal places.
Should this system be purchased? Why?
(b) Use the modified benefit-cost (B/C ratio) for Present Worth method to make a
recommendation.
(i)
Compute the modified B/C ratio. Round your answer to 2 decimal places.
Should this system be purchased? Why?
(ii)
(c) Assume that the electricity costs will increase at the inflation rate of 3% per year.
(i)
(ii)
Compute the conventional B/C ratio. Round your answer to 2 decimal places.
Should this system be purchased? Why?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2e06a022-2644-40f5-b1e8-d4d66cc0b94e%2F7a8798e8-2f3e-43df-bbc8-49762b4faad5%2F1iovmre_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A retrofitted heating system is being considered for an office building. The system can be
purchased and installed for $ (501,000), and it will save an estimated (101,000) kilowatt-hours
(kWh) of electric power each year over a 6-year period. A kilowatt-hour of electricity costs
$1.164.
The market value (MV) of the system will be $ (8,100) at the end of six years, and the annual
operating and maintenance expenses (O&M) for the system are $ (5,100).
MARR is15% per year.
(a) Use the conventional benefit-cost (B/C ratio) for Present Worth method to make a
recommendation.
(i)
(ii)
Compute the conventional B/C ratio. Round your answer to 2 decimal places.
Should this system be purchased? Why?
(b) Use the modified benefit-cost (B/C ratio) for Present Worth method to make a
recommendation.
(i)
Compute the modified B/C ratio. Round your answer to 2 decimal places.
Should this system be purchased? Why?
(ii)
(c) Assume that the electricity costs will increase at the inflation rate of 3% per year.
(i)
(ii)
Compute the conventional B/C ratio. Round your answer to 2 decimal places.
Should this system be purchased? Why?
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