A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for$142,000, and it will save an estimated 240,000 kilowatt-hours (kWh) of electric power each year over a six-year period. Akilowatt-hour of electricity costs $0.14, and the company uses a MARR of 12% per year in its economic evaluations ofrefurbished systems. The market value of the system will be $28,400 at the end of six years, and additional operating andmaintenance expenses are $15,600 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 12% per year.The conventional B-C ratio of the system is 1.41. (Round to two decimal places.)This B-C ratio indicates that the project is not acceptable .

Given Data: Cost: Heating System = $142,000 Additional operating and Maintenance cost = $15,600…

Answered: A retrofitted space-heating system is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $195,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.77 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $590,000. Finally, the project requires an immediate investment in working capital of $445,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $6.10 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs…
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