**Retrofitted Space-Heating System Evaluation**A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $86,000, and it will save an estimated 170,000 kilowatt-hours (kWh) of electric power each year over a five-year period. A kilowatt-hour of electricity costs $0.14, and the company uses a Minimum Attractive Rate of Return (MARR) of 12% per year in its economic evaluations of refurbished systems. The market value of the system will be $17,200 at the end of five years, and additional operating and maintenance expenses are $9,500 per year. Use the benefit-cost method to make a recommendation.

Answered: A retrofitted space-heating system is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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**Retrofitted Space-Heating System Evaluation**

A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $86,000, and it will save an estimated 170,000 kilowatt-hours (kWh) of electric power each year over a five-year period. A kilowatt-hour of electricity costs $0.14, and the company uses a Minimum Attractive Rate of Return (MARR) of 12% per year in its economic evaluations of refurbished systems. The market value of the system will be $17,200 at the end of five years, and additional operating and maintenance expenses are $9,500 per year. Use the benefit-cost method to make a recommendation.

Expert Solution

Step 1: Determine the given information:

Initial cost or first cost (P) =$86,000.

170,000 kWh of electricity is saved every year by the new system and the cost of 1 kWh of electricity is 0.14.

Therefore, annual savings = $170 comma 000 cross times 0.14 equals 23 comma 800$

The annual maintenance cost per year is $9,500.

The salvage value after 5 years is 17,200

The economic life of the system = is 5 years.

MARR =12% per year.

The conventional B/C ratio is the ratio of the present worth of net benefit to the present worth of total cost. The present value of maintenance cost is added in the cost and placed in the denominator. The salvage value is added to the cost and placed in the denominator.

$B divided by C space r a t i o space equals fraction numerator P W space b e n e f i t s minus P W space d i s b e n f i t s over denominator P W space o f space cos t end fraction$

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