99 Speedmart Sdn Bhd is considering purchasing a new central unit air-conditioning system to improve the...

 

Transcribed Image Text:

99 Speedmart Sdn Bhd is considering purchasing a new central unit air-conditioning system to improve the air circulation and to increase comfortable feeling in its shop. Two types of system are available on the market and the company plans to use the service of either system not more than eight years. The purchase and installation of System A is RM 15,000. The annual maintenance cost for this system is RM 1,000 per year and to make sure the system runs effectively, the parts of the system must be changed three times per year, which costs them RM 400 for each replacement. The system would last for four years; at which time it should have no more salvage value. System B will cost them RM 20,000. This system has a special requirement during installation. This requirement will require a small renovation on the ceiling and is estimated to cost RM 1,500. The useful life for this system is 8 years with a market value of only 25% from the initial value at the end of life. This system has a special offer from the supplier: Free maintenance cost for one year and the annual maintenance cost of RM 1,100 starts at year 2 until year 8. The annual operating cost for both systems are shown in Table 3. In addition, the company has another option of renting a standalone air-conditioning system for RM 6,500 per year with the rental cost increasing by 5% per year. The system is fully maintained by the rental company. Based on the above information: (a) Suggest, with justifications, THREE (3) alternatives available to the company to improve the air circulation and to increase comfortable feeling in its shop for 8 years including the cash flow diagram illustration. (9 marks) (b) Recommend which alternative appears to be the best at MARR of 10% per year considering present worth method. Year 1 2 3 4 5 6 7 8 Table 3: Annual Operating Cost System A (RM) 0 3,500 3,500 3,500 System B (RM) 800 1,100 1,400 1,700 2,000 2,300 2,600 2,900 99 Speedmart Sdn Bhd is considering purchasing a new central unit air-conditioning system to improve the air circulation and to increase comfortable feeling in its shop. Two types of system are available on the market and the company plans to use the service of either system not more than eight years. The purchase and installation of System A is RM 15,000. The annual maintenance cost for this system is RM 1,000 per year and to make sure the system runs effectively, the parts of the system must be changed three times per year, which costs them RM 400 for each replacement. The system would last for four years; at which time it should have no more salvage value. System B will cost them RM 20,000. This system has a special requirement during installation. This requirement will require a small renovation on the ceiling and is estimated to cost RM 1,500. The useful life for this system is 8 years with a market value of only 25% from the initial value at the end of life. This system has a special offer from the supplier: Free maintenance cost for one year and the annual maintenance cost of RM 1,100 starts at year 2 until year 8. The annual operating cost for both systems are shown in Table 3. In addition, the company has another option of renting a standalone air-conditioning system for RM 6,500 per year with the rental cost increasing by 5% per year. The system is fully maintained by the rental company. Based on the above information: (a) Suggest, with justifications, THREE (3) alternatives available to the company to improve the air circulation and to increase comfortable feeling in its shop for 8 years including the cash flow diagram illustration. (9 marks) (b) Recommend which alternative appears to be the best at MARR of 10% per year considering present worth method. Year 1 2 3 4 5 6 7 8 Table 3: Annual Operating Cost System A (RM) 0 3,500 3,500 3,500 System B (RM) 800 1,100 1,400 1,700 2,000 2,300 2,600 2,900

Answer rating: 100% (QA)

Year 4 Cash flow 15000 2200 ... View the full answer