Question: Problem 4 (20 points) Zzzz's R Us makes sleep products. Their current building is five years old and has an HVAC sys of the same

Problem 4 (20 points) Zzzz's R Us makes
Problem 4 (20 points) Zzzz's R Us makes sleep products. Their current building is five years old and has an HVAC sys of the same age. The unit cost $12,000 initially and has annual operating costs which bega $1200 and increased by $200 each year since so that last year it was $2000. The current b value of the system is $7,000 but its resale value is $4000 at present. It will have a salvage va of $0 in 10 more years. The company is planning an expansion to make new lines which will require a new wing additional HVAC. There are two choices for the HVAC. Option 1 - Keep the current system and buy a new system for the new wing only. The new sys would cost $9,000 and have a service life of 15 years with no salvage value at that time. operating costs will start at $1,000 the first year and increase by $50 per year. In 10 years it have a market value of $1,600. Option 2 - Replace the current system with a unit that will handle the entire building with new wing. This unit will cost $19,000 and have operating costs of $1700 the first year, increa by $100 each year. It has an expected life of 15 years with no salvage value, but after 10 yea will have a market value of $4000. MARR is 20% and Zzzz has a 10 year planning horizon. a. Make a cash flow diagram for each alternative. b. Using a Present Worth analysis, decide which alternative is more favorable

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Mathematics Questions!