You are the building and grounds maintenance manager for the regional headquarters building of Star Corporation....

 

Transcribed Image Text:

You are the building and grounds maintenance manager for the regional headquarters building of Star Corporation. The building's Furnace System needs to be replaced. Peter is a salesman for Kroner industries which specializes in making of natural gas furnaces. Peter has offered you the following choices. Choice L (Low efficiency furnace) Initial cost of furnace is $280,000 including complete installation. First year maintenance and heating cost (natural gas) is expected to be $70,500. It is expected to grow at 4.5% every year. Useful life is 20 years. Choice M (Medium efficiency furnace) Initial cost of furnace is $350,000 including complete installation. First year maintenance and heating cost (natural gas) is expected to be $61,100. It is expected to grow at 4.5% every year. Useful life is 20 years. Choice H (High efficiency furnace) Initial cost of furnace is $520,000 including complete installation. First year maintenance and heating cost (natural gas) is expected to be $50,000. It is expected to grow at 4.5% every year. Useful life is 20 years. Which furnace will you choose? Why? Explain. Use interest rate of 9.7% per year (that is the cost of capital for Star Corporation). You are the building and grounds maintenance manager for the regional headquarters building of Star Corporation. The building's Furnace System needs to be replaced. Peter is a salesman for Kroner industries which specializes in making of natural gas furnaces. Peter has offered you the following choices. Choice L (Low efficiency furnace) Initial cost of furnace is $280,000 including complete installation. First year maintenance and heating cost (natural gas) is expected to be $70,500. It is expected to grow at 4.5% every year. Useful life is 20 years. Choice M (Medium efficiency furnace) Initial cost of furnace is $350,000 including complete installation. First year maintenance and heating cost (natural gas) is expected to be $61,100. It is expected to grow at 4.5% every year. Useful life is 20 years. Choice H (High efficiency furnace) Initial cost of furnace is $520,000 including complete installation. First year maintenance and heating cost (natural gas) is expected to be $50,000. It is expected to grow at 4.5% every year. Useful life is 20 years. Which furnace will you choose? Why? Explain. Use interest rate of 9.7% per year (that is the cost of capital for Star Corporation).

Answer rating: 100% (QA)

To determine the most costeffective choice among the three options Low efficiency Medium efficiency and Highefficiency furnaces we need to calculate t... View the full answer