A retrofitted space-heating system is being considered for a small office building. Thesystem can be purchased and installed for $95,000, and it will save an estimated150,000 kilowatt-hours (kWh) of electric power each year over a seven-year period.A kilowatt-hour of electricity costs $0.12, and the company uses a MARR of 12% peryear in its economic evaluations of refurbished systems. The market value of the systemwill be $19,000 at the end of seven years, and additional operating and maintenanceexpenses are $10,500 per year. Use the benefit-cost method to make arecommendation.Click the icon to view the interest and annuity table for discrete compounding whenthe MARR is 12per year.The conventional B-C ratio of the system is 1.48. (Round to two decimal places.)This B-C ratio indicates that the project is not acceptable.

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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A retrofitted space-heating system is being considered for a small office building. The
system can be purchased and installed for $95,000, and it will save an estimated
150,000 kilowatt-hours (kWh) of electric power each year over a seven-year period.
A kilowatt-hour of electricity costs $0.12, and the company uses a MARR of 12% per
year in its economic evaluations of refurbished systems. The market value of the system
will be $19,000 at the end of seven years, and additional operating and maintenance
expenses are $10,500 per year. Use the benefit-cost method to make a
recommendation.
Click the icon to view the interest and annuity table for discrete compounding when
the MARR is 12per year.
The conventional B-C ratio of the system is 1.48. (Round to two decimal places.)
This B-C ratio indicates that the project is not acceptable.

Expert Solution

Step 1: Determine the given information:

The first cost of the heating system is $95,000

The heating system saves 150,000 kWh per year and 1Kwh of electricity costs $0.12.

Therefore, annual saving is equal to $equals 150 comma 000 cross times 0.12 equals 18 comma 000$

Service life (n) = 7 years

Salvage value = $19,000

Operating and maintenance cost (O&M) = $10,500 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 net benefit is benefit minus disbenefits and PW of the total cost is the sum of the initial cost, the present value of O&M cost minus the present worth of salvage value.

If the B/C ratio is greater than or equal to 1 then the project is said to be economically feasible and the project should be accepted.

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