A retrofitted space-heating system is being considered for a small office buildi
ID: 2619069 • Letter: A
Question
A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $113,000, and it will save an estimated 310,000 kilowatt-hours (kWh) of electric power each year over a seven-year period. A kilowatt-hour of electricity costs $0.13, and the company uses a MARR of 17% per year in its economic evaluations of refurbished systems. The market value of the system will be $9.000 at the end of seven years, and additional annual operating and maintenance expenses are negligible. 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 17% per year The benefit-cost ratio of the system with PWis L. (Round to two decimal places.) More Info Discrete Compounding: 17% Single Payment Uniform Series Compound Amount Factor To Find F Given P FIP 1.1700 1.3689 1.6016 1.8739 2.1924 2.5652 3.0012 3.5115 4.1084 4.8068 Compound Amount Factor To Find F Given A FIA 1.0000 2.1700 3.5389 5.1405 7.0144 9.2068 11.7720 14.7733 18.2847 22.3931 Capital Recovery Factor To Find A Given P AIP Sinking Present Worth Factor To Find P Given F PIF 0.8547 0.7305 0.6244 0.5337 0.4561 0.3898 0.3332 0.2848 0.2434 0.2080 Present Worth Factor To Find P Given A PIA 0.8547 1.5852 2.2096 2.7432 3.1993 3.5892 3.9224 4.2072 4.4506 4.6586 Factor To Find A Given F AIF 1.0000 0.4608 0.2826 0.1945 0.1426 0.1086 0.0849 0.0677 0.0547 0.0447 1.1700 0.6308 0.4526 0.3645 0.3126 0.2786 0.2549 0.2377 0.2247 0.2147 4 10Explanation / Answer
To calculate benefit-cost (B-C) ratio, first we have to calculate present worth (PW) of benefits and present worth of cost of electric system.
The cost is at zero periods therefore its present worth of cost (C) equal to its purchase price which is $113,000.
Now present worth of benefits calculation:
Annual benefit is saving of 310,000 kWh electric powers at $0.13 per kilowatt-hour
= 310,000 * $.13 = $40,300
The MARR of company = 17% per annum
The useful life of electric system is 7 years.
Salvage value after 7 years = $9,000
Therefore benefit from electric system (B) = Present worth annuity factor * $40,300 + Present worth factor * $9,000
=3.9224 * $40,300 + 0.3332 * $9,000
= $158,072.72 + $2,998.80
=$161,071.52
B-C Ratio = Present worth of benefits / Present worth of cost
=$161,071.52 / $113,000
= 1.43 which is greater than 1 therefore the project is recommended on the basis of B-C Ratio.
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