Question 2 [Total 15 marks]

A retrofitted heating system is being considered for an office building. The system can be purchased and installed for $501,000, and it will save an estimated 101,000 kilowatt-hours (kWh) of electric power each year over a 6-year period. A kilowatt-hour of electricity costs $1.164.

The market value (MV) of the system will be $ 8,100 at the end of six years, and the annual operating and maintenance expenses (O&M) for the system are $ 5,100.

MARR is15% per year.

1. Use the conventional benefitcost (B/C ratio) for Present Worth method to make a recommendation.

1. Compute the conventional B/C ratio. Round your answer to 2 decimal places.
2. Should this system be purchased? Why?

2. Use the modified benefitcost (B/C ratio) for Present Worth method to make a recommendation.

1. Compute the modified B/C ratio. Round your answer to 2 decimal places.
2. Should this system be purchased? Why?

3. Assume that the electricity costs will increase at the inflation rate of 3% per year.

1. Compute the conventional B/C ratio. Round your answer to 2 decimal places.
2. Should this system be purchased? Why?