Assuming that the owner wants to have a return of investment of 20%, select the best option
Question:
Assuming that the owner wants to have a return of investment of 20%, select the best option that you will recommend to the owner.
Show calculations.
You were task to perform a Technical Study on whether to retrofit or replace an existing water-cooled chiller unit.
Option 1: Retrofit the Existing Chiller Unit. The existing chiller unit has the following information. Retrofit Cost: $50,000.00. Will prolong useful life with additional 10 years. (Useful life is 25 years and the unit is already 20 years in operation). Yearly Energy Cost was estimated to be $10,000.00 annually with a yearly increase of 3%. Maintenance cost after retrofit is $5,000.00 annually with an escalating increase of 5% every year until the added useful life has been consumed.
Option 2: Replace the Chiller Unit with a new one. Initial Cost: $120,000.00 with a useful life of 25 years. The maintenance cost is $2,500.00 with an escalating increase of 1% every year. Yearly Energy Cost was estimated to be $5,000.00 with an increase of 1% every year.
Mathematical Applications for the Management Life and Social Sciences
ISBN: 978-1305108042
11th edition
Authors: Ronald J. Harshbarger, James J. Reynolds