Create an MPV analysis with the information below:

Case:

. Lift operations uses slightly more than half of all electricity at the ski area(data is provided

in the Data section below). Grooming the slopes requires 5 to 7 large machines running from

5:00 PM through the night. Snowflake has a fleet of 8 Pisten Bully groomers of various ages.

One of the older machines is about to be replaced. The replacement will cost $455,000. It has a

standard diesel engine but gets slightly better mileage than the existing fleet machines. Over the

entire season the machine will be run for about 1,100 hours with a fuel consumption rate of 5.75

gallons of diesel per hour.

Pisten Bully has just introduced a hybrid groomer, the 600 E+, that uses electric motor assist

to reduce fuel use.The electric-assist reduces diesel fuel consumption (and thereby CO2

emissions) by about 20%. The price of one of these machines is $495,000.It has identical

performance to the standard diesel machine. Assume both machines have a life of 20 years and

identical maintenance costs.

The battery in the 600 E+ is rated at 140 KwH. The battery is partially recharged while the

machine is operating through a regenerative braking system. Topping off the battery would

require approximately four hours with a 20 Kw fast charger, or about 80 Kwh per day for the 150

days ski season. The cost of the fast charger would be about $800. Installation can be done inhouse.

Using a discount rate of 6%, which machine should Snowflake Ski Basin buy?

Replacement decisions: The best way to analyze a choice between two machines that do the same job is to compute the differences in cash flows between them. We can use the non-hybrid groomer as the standard and then compute the cost difference of the hybrid machine to it. The hybrid groomer costs $40,000 more than the non-hybrid. But the hybrid uses 20% less fuel. Looking at just the differences: the hybrid groomer requires a $40,000 additional investment that purchases 20 years of fuel savings. These differences will give you the NPV you want, when discounted.