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e355t1q2

# e355t1q2 - E355-Spring08-Test1-Sol 1.2 Excel Consulting is...

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E355-Spring08-Test1-Sol 1.2 Excel Consulting is considering upgrading the HVAC system currently installed in its facility. A contractor has suggested the following two alternatives, with their estimated yearly savings in energy costs: Description Alternative A Alternative B P First Cost 70,000 25,000 +A Annual Revenue 15,000 5,000 -A Annual Expense 5,000 0 10,000 S Salvage value 0 0 5,000 N Life 12 6 I MARR 20% 20% Note: All units are in '000 dollars a) Calculate the PW for each option. [4 point] PW = A(P/A, i, N) + S(P/F, i, N) - P PW PlanA = ( 15,000 \$ - 5,000 \$ ) X ( P/A, 20%,12 ) + - \$ X (P/F, 20%,12) - 70,000 \$ PW PlanA = ( 15,000 \$ - 5,000 \$ ) X ( 4.43921 ) + - \$ X 0.1121 - 70,000 \$ PW A = -25607.90 K PW Plan B = ( 5,000 \$ - - \$ ) X ( P/A,20%,6) ) + - \$ X (P/F,20%, 6) - 25,000 \$ PW B = ( 5,000 \$
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