A retrofitted heating system is being considered for an office building. The system can bepurchased 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 annualoperating 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 arecommendation.(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 arecommendation.(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?

Benefit cost ratio:The benefit-cost ratio, a vital financial metric, measures the relative value of…

Answered: A retrofitted heating system is being…

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

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Rakesh
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