A mechanical engineer must recommend an A/C system to a commercial building owne

Question

A mechanical engineer must recommend an A/C system to a commercial building owner. The owner intends to own the building for at least 10 years. A conventional split system has a design life of 10 years, a cost of $50,000, and annual operating costs of $15,000. A chilled water system has a design life of 10 years, an initial cost of $65,000, and annual operating costs of $13,000. Using a rate of return of 10%, determine the present worth index of the incremental investment up to the chilled water system. Express your answer to two decimal places.

Explanation / Answer

(P/A,i,n)=((1+i)^n-1)/[(i*(1+i)^n]

Conventional split system

=-50,000-15000*(p/A,10%,10)=$-142,168.51

Chilled water system Present worth index

=-65,000-13,000*(P/A,10%,10)

=$-144,879.37

Incremental=$2710.87

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