Question

A mechanical engineer must recommend an A/C system to a commercial building owner. The owner uses and MARR of 6%, but is not sure how long he will own the building. A conventional split system has a design life of 10 years, a cost of $52,000, and annual operating costs of $15,000. A chilled water system has an initial cost of $75,000 and annual operating costs of $14,000. Assuming each unit has no salvage value and will be identically replaced for the life of the building, determine how long the chilled water system needs to last for it to be the best choice (i.e. determine the break even useful life for the chilled water system). Express your answer in years to the nearest whole year.

Answer 1

12 years

Step-by-step explanation:

The chilled water system lasts for in line with the building. To calculate break even useful life of chilled water we assume no salvage value. The company uses MARR of 6% . The conventional system costs $52,000 and annual operating cost is $15,000. We can calculated the useful life by adding the system cost and its operating cost with multiplying minimum acceptable rate of return.

$52,000 * A/P (6%, 10) + $15,000 = 12 years.