Question

Save Homework: Chapter 6 HW Score: 0 of 1 pt Problem 6-5 (algorithmic) 4 of 11 (8 complete) HW Score: 38.78%, 4.27 of 11 pts I Question Help Your company is environmentally conscious and is considering two heating options for a new research building, What you know about each option is below, and your company will use an annual interest rate (MARR) of 8% for this decision. Which is the lower cost option for the company? i Click the icon to view the additional information about the options, Click the icon to view the interest and annuity table for discrete compounding when the MARR is 5% per year. Click the icon to view the interest and annuity table for discrete compounding when the MARR is B% per year. The PW of the Gas Heating Option is $ (Round to the nearest dollar)

thats all the info that is given.

Answer 1

Gas Heating Option:

Initial cost = -$245000

Maintenance cost = -$1000

Energy Cost = -$6000 with growth rate of 5%

Hence PW of Maintenance cost = -1000(P/A, 16, 8%) = -1000*8.851 = -$8851

PW of Energy cost = A*(1-(1+g)^n/(1+r)^n)/(r-g)

=-6000*(1-(1+5%)^16/(1+8%)^16)/(8%-5%)

=-6000*(1-2.183/3.426)/3%

=-6000*(1-0.6372)/0.03

=-6000*0.3628/0.03

=-$72562.76

Hence Total PW = -245000-8851-72562.76=-$326413.76 or -$326414

AW = -326414*(A/P, 16, 8%) = -326414*0.113 = -$36884.75

Geothermal Heating Option:

Initial cost = -$205000

Maintenance cost = -$14000

Hence PW of Maintenance cost = -14000(P/A, 20, 8%) = -14000*9.818 = -$137452

Hence Total PW = -205000-137452=-$342452

AW = -342452*(A/P, 20, 8%) = -342452*0.1019 = -$34895.85

Since AW of Geothermal Option is higher it is the lower cost option