Nico has a 20-year-old oil-fired hot air furnace in his house. He is considering replacing it with a new high-efficiency natural gas furnace. The oil-fired furnace has a scrap value of $500, which it will retain indefinitely. A maintenance contract costs $300 per year, plus parts. Nico estimates that parts will cost $200 this year, increasing by $100 per year in subsequent years. The new gas furnace will cost $4500 to buy and $500 to install. It will save $500 per year in energy costs. The maintenance costs for the gas furnace are covered under guarantee for the first five years. The market value of the gas furnace can be estimated from straight-line depreciation with a salvage value of $500 after 10 years. Using a MARR of 10 percent, should the oil furnace be replaced?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Nico has a 20-year-old oil-fired hot air furnace in his house. He is considering replacing it
with a new high-efficiency natural gas furnace. The oil-fired furnace has a scrap value of $500, which
it will retain indefinitely. A maintenance contract costs $300 per year, plus parts. Nico estimates that
parts will cost $200 this year, increasing by $100 per year in subsequent years. The new gas furnace will
cost $4500 to buy and $500 to install. It will save $500 per year in energy costs. The maintenance costs
for the gas furnace are covered under guarantee for the first five years. The market value of the gas
furnace can be estimated from straight-line depreciation with a salvage value of $500 after 10 years.
Using a MARR of 10 percent, should the oil furnace be replaced?
Transcribed Image Text:Nico has a 20-year-old oil-fired hot air furnace in his house. He is considering replacing it with a new high-efficiency natural gas furnace. The oil-fired furnace has a scrap value of $500, which it will retain indefinitely. A maintenance contract costs $300 per year, plus parts. Nico estimates that parts will cost $200 this year, increasing by $100 per year in subsequent years. The new gas furnace will cost $4500 to buy and $500 to install. It will save $500 per year in energy costs. The maintenance costs for the gas furnace are covered under guarantee for the first five years. The market value of the gas furnace can be estimated from straight-line depreciation with a salvage value of $500 after 10 years. Using a MARR of 10 percent, should the oil furnace be replaced?
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