Q1 - With these new estimates, What is the AW of the Investment and Salvage value for YORK AC unit? Q2 - With these new estimates, What is the FW of the Investment and Salvage value for YORK AC unit?
Q1 - With these new estimates, What is the AW of the Investment and Salvage value for YORK AC unit? Q2 - With these new estimates, What is the FW of the Investment and Salvage value for YORK AC unit?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Q1 - With these new estimates, What is the AW of the Investment and Salvage value for YORK AC unit?
Q2 - With these new estimates, What is the FW of the Investment and Salvage value for YORK AC unit?
Transcribed Image Text:Mohamad, owner of an residential furnished apartment's in Dubai, performed an economic analysis 4 years ago when he decided to place an new eefficient central AC unit for each
apartments instead of old split units windows type in each room. The estimates used and the annual worth analysis at MARR = 12% are summarized below. Two different
AC brands were compared.
LG
York
Cost and installation, $
Annual maintenance cost, $ per year -800
Salvage value, $
Electrical power savings, $ per year 25,000 35,000
Useful life, years
-26,000 -36,000
-300
2,000
3,000
7
10
The spreadsheet in below sheet is the one Mohamad used to make the decision. York was the clear choice due to its substantially larger AW value, hence York AC units were
installed.
MARR
12%
LG
York
Annual
Repair
savings
Repair
maintenance savings
Investment
Investment
Annual
and salvage
and salvage
0$26,000
Years
maintenance
$0
$800
$0
$36,000
$0
$0
$25,000
$25,000
$300
$300
1 $0
$0
$35,000
2 $0
-$800
$0
$35,000
3 $0
$800
$35,000
$25,000
$25,000
$0
$300
4 $0
$800
$0
$300
$35,000
$35,000
5 $0
6 $0
$25,000
$25,000
$25,000
$800
$0
$300
-$800
$0
-$300
$35,000
7$2,000
$800
$0
$35,000
$35,000
$35,000
8
$0
-$300
9
$0
|$300
10
$3,000
$300
$35,000
AW element
$6,068
$800
$25,000
|$7,025
$300
$35,000
Total AW
$18,701.17
$28,499.52
During a quick review (year 4 of operation), it was obvious that the maintenance costs and repair savings have not followed (and will not follow) the estimates made 4 years ago. In
fact, the maintenance contract cost is going from $300 this year (year 4) to $1200 per vear next year and will then increase 7% per year for the next 6 years. Also, the electrical
power savings for the last 4 years were $31,312 (year 1), $27,565 ( year 2), $30,493( year3), and $32,903( year4), as best as Mohamad can determine. He believes savings will
decrease by $3,349 per year hereafter. Finally, these 4-year-old AC units are worth nothing on the market now, so the salvage is zero, not $3000.
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