Question

2) A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $110,000. Due to improved efficiency, it will require less electric power than the current system each year over a six-year period. The market value of the system will be $20,000 at the end of six years. A kWh of electricity costs $0.10, and the company uses a MARR of 15% per year. What are the minimum electrical savings in kWh on an annual basis to make this project economically acceptable?

Answer 1

Let electricity savings per year be x KWh

Initial Cost=C=$110000

Salvage =S=$20000

Energy savings per year=0.10*x

MARR=i=15%

Useful life=n=6 years

A project is acceptable if its annual worth is at least zero.

AW=-110000*(A/P,0.15,6)+0.10x+20000*(A/F,0.15,6)

Put AW=0

-110000*(A/P,0.15,6)+0.10x+20000*(A/F,0.15,6)=0

Let us calculate the interest factors

(A/P,1,n) = 1 -

$(A/P,0.15,6)=\frac{0.15}{1-\frac{1}{(1+0.15)^{6}}}=0.264237$

(A/F,i,n) = a (1 + i)" - 1

$(A/F,0.15,6)=\frac{0.15}{(1+0.15)^{6}-1}=0.114237$

Plug in these interest factors in above equation

-110000*0.264237+0.10x+20000*0.114237=0

x=(110000*0.264237-20000*0.114237)0.10=267813.30 KWh per year