A mechanical engineer must recommend a new heating system to a commercial buildi

Question

A mechanical engineer must recommend a new heating system to a commercial building owner. The owner intends to sell the building in 15 years. A gas fired furnace option has a design life of 5 years, an initial cost of $11,000, a replacement cost of $6,000 and annual operating costs of $3,500, but adds no value to the building when sold. A geothermal heat pump system has a design life of 10 years, an initial cost of $20,000, a replacement cost of $9,000, annual operating costs of $2,500, and increases the value of the building by $3,000, when it is sold at the end of year 15. Determine the equivalent uniform annual cost (EUAC) of costs for the option the engineer should recommend at an interest rate of 8.3%. Express your answer in $ to the nearest $10.

Explanation / Answer

Details as given in question is summarized as under:

5,000

PW of both the options are calculated as under:

45,501

So the PW of costs for the option the engineer should recommend at an interest rate of 5.3% is $45,500 of geothermal heat pump system.

Note: Replacement Cost will be multiplied by the factor of year when the life of gas fired furnace and heat pump system will expire as it will be purchased in the beginning of year.

Life Initial Cost Replacement Cost Annual operating Cost Value addition to building Gas Fired Furnace 5 years $14,000 7,000 3,500 - Geothermal heat pump system 10 years $17,000 9,000 2,500

5,000

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