In a refrigeration system, a small compressor, including condenser, costs $5,000 to purchase and install. It has a useful life of 20 years and will incur annual maintenance expenses of $200 per year in real (year-zero) dollars during this period. An expansion device replacement will be required at the end of the tenth year at a cost of $800 in real dollars. The annual cost of electricity for the refrigeration' system is $1,200 based on present prices. The electricity prices are projected to increase at an annual rate of 10%. All other costs are expected to increase at 5%, which is the projected general price inflation rate. The firm's MARR, which includes allowances for general price inflation, is 15% per year (im). No market value is expected from the compressor at the end of 20 years. (8.6)
a. What is the AW, expressed in actual dollars, of owning and operating the compressor?
b. What is the AW in real dollars of owning and operating the compressor?