A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $115,000, and it will save an estimated 240,000 kilowatt-hours (kWh) of electric power each year over a six-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 $23,000 at the end of six years, and additional operating and maintenance expenses are $12,700 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 places.) This B-C ratio indicates that the project is (Round to two decimal

A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $115,000, and it will save an estimated 240,000 kilowatt-hours (kWh) of electric power each year over a six-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 $23,000 at the end of six years, and additional operating and maintenance expenses are $12,700 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 places.) This B-C ratio indicates that the project is (Round to two decimal

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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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 $120,000, and it will save an estimated 300,000 kilowatt-hours (kWh) of electric power each year over a six-year period. A kilowatt-hour of electricity costs $0.10, and the company uses a MARR of 15% per year in its economic evaluations of refurbished systems. The market value of the system will be $8,000 at the end of six years, and additional annual operating and maintenance expenses are negligible. what is the benefit–cost ratio of the project if the general inflation rate is 4% per year and the market value is negligible? The market interest rate (im) is 18% per year, and the annual savings are expressed in year-zero dollars.