1. Conduct a present value analysis to select the best alternative
a) Consider that the replacements will be for identical units.
b) The salvage value of the equipment corresponds to the unit disposal cost.
c) Analyze a 30-year horizon.
d) Consider an interest rate of 6%.
2. Perform a sensitivity analysis, keeping the parameters of the centrifuge system, and changing the useful life of the console system from 5 years to a maximum of 10 years.
3. Consider that the equipment will be purchased by a manufacturing industry.
a) Determine the IRR at which both alternatives are equally attractive.
b) Assume that the previously analyzed console system will be used to provide air conditioning in a manufacturing industry that generates a taxable income of $3M to $5M annually.
It will be installed ina certain production area that generates an annual gross income of $450K. The operating costs are $125K per year. Depreciate the console system, in operational state, using MACRS and determine the after-tax cash flow. Calculate the IRR before and after taxes. Perform the scan only for the first time the equipment is installed. (1st cycle, depending on the life)
The teachers' office area in the Antonio Lucchetti building has problems associated with the air conditioning system. Currently the existing system is a centrifuge. The Buildings and Grounds Department is evaluating two alternatives to address the situation. The first alternative is to replace the 50-ton centrifuge (chiller), the handler system and its isolation system. The initial costs are the following: 30 years Unit Cost Useful life Centrifuge 50 tons $33,000 15 years Handlers $47,000 Labor for installation concept * $1,400 n/a Materials for initial installation ** $2,500 n/a Isolation system $22,000 n/a * It is reduced to 40% of the original cost in case of equipment replacement. ** The cost of replacement materials is also assumed 40% of the original cost. Maintenance of the centrifuge consists of: Maintenance labor Personnel Duration Monthly Cost requirements of labor salary Cleaning every 6 months 1 technician 1 day $1,550 1 assistant $1,515 Annual maintenance of 1 technician 1/2 day $1,550 water pump 1 assistant $1,515 Annual manufacturer $1,000 visit Replacement of fans 1 technician 1 hour $1,550 $150 every 3 years 1 assistant $1,515 Maintenance is carried out by personnel from the Refrigeration Workshop assigned to the Department of Buildings and Land of the land. The total hours that a regular employee works in the Campus is 1,950 hours per year, at a rate of 7.5 hours per day. (They will need to calculate the cost associated with the time staff spend on maintenance tasks for this particular equipment.) Additional costs associated with operating the centrifuge are the following: Cost item Frequency Cost Cold water pipe isolation Every 6 years $22,000 replacement The costs associated with the electricity consumption of the centrifuge system are the following: The cost of daily electricity consumption for a 50-ton centrifuge is $ 150 per day. The cost for electricity consumption of the handler is $ 25 per day. The centrifuge system operates continuously. The second alternative consists of the installation of a system of individual units consisting of four condensers and 41 consoles. The initial costs are the following: Cost item Unit cost Units Total cost Useful life Condenser MDV 400 $9,000 2 6 years Condenser MDV 450 $9,700 2 6 years Consoles 12,000 BTU $700 31 6 years Consoles 19,000 BTU $900 10 6 years Materials $35,000 n/a Labor for installation $18,000 n/a concept **** *** Includes materials for the isolation system. The cost of materials for the replacement of the consoles is obviated. Replacement labor is reduced to 80% of the original cost. System maintenance consists of: Maintenance labor Personnel Units Duration Monthly Cost of parts requirements of labor salary to replace Console cleaning and filter 1 technician 41 1.5 hours $1,550 $30/unit replacement once a year 1 assistant $1,515 Condenser cleaning once a 1 technician 4 1 hour $1,550 year 1 assistant $1,515 Console extraction pump 1 technician 41 % day 1 technician $50/unit replacement every 3 years 1 assistant 1 assistant Maintenance is carried out by personnel from the Refrigeration Workshop assigned to the Department of Buildings and Land of the land. The total hours that a regular employee works in the Campus is 1,950 hours per year, at a rate of 7.5 hours per day. (They will need to calculate the cost associated with the time staff spend on maintenance tasks for this particular equipment.) The additional costs associated with the operation of the console system are the following: Cost item Reemplazo de aislacin de tubera de refrigerante Frequency Cada 12 aos Cost $12,000 The costs associated with the electrical consumption of the console system are the following: The cost for electricity consumption of the complete console system is $ 175 per day, at a rate of 12 hours per day Assume that the system will operate for 260 business days annually. The teachers' office area in the Antonio Lucchetti building has problems associated with the air conditioning system. Currently the existing system is a centrifuge. The Buildings and Grounds Department is evaluating two alternatives to address the situation. The first alternative is to replace the 50-ton centrifuge (chiller), the handler system and its isolation system. The initial costs are the following: 30 years Unit Cost Useful life Centrifuge 50 tons $33,000 15 years Handlers $47,000 Labor for installation concept * $1,400 n/a Materials for initial installation ** $2,500 n/a Isolation system $22,000 n/a * It is reduced to 40% of the original cost in case of equipment replacement. ** The cost of replacement materials is also assumed 40% of the original cost. Maintenance of the centrifuge consists of: Maintenance labor Personnel Duration Monthly Cost requirements of labor salary Cleaning every 6 months 1 technician 1 day $1,550 1 assistant $1,515 Annual maintenance of 1 technician 1/2 day $1,550 water pump 1 assistant $1,515 Annual manufacturer $1,000 visit Replacement of fans 1 technician 1 hour $1,550 $150 every 3 years 1 assistant $1,515 Maintenance is carried out by personnel from the Refrigeration Workshop assigned to the Department of Buildings and Land of the land. The total hours that a regular employee works in the Campus is 1,950 hours per year, at a rate of 7.5 hours per day. (They will need to calculate the cost associated with the time staff spend on maintenance tasks for this particular equipment.) Additional costs associated with operating the centrifuge are the following: Cost item Frequency Cost Cold water pipe isolation Every 6 years $22,000 replacement The costs associated with the electricity consumption of the centrifuge system are the following: The cost of daily electricity consumption for a 50-ton centrifuge is $ 150 per day. The cost for electricity consumption of the handler is $ 25 per day. The centrifuge system operates continuously. The second alternative consists of the installation of a system of individual units consisting of four condensers and 41 consoles. The initial costs are the following: Cost item Unit cost Units Total cost Useful life Condenser MDV 400 $9,000 2 6 years Condenser MDV 450 $9,700 2 6 years Consoles 12,000 BTU $700 31 6 years Consoles 19,000 BTU $900 10 6 years Materials $35,000 n/a Labor for installation $18,000 n/a concept **** *** Includes materials for the isolation system. The cost of materials for the replacement of the consoles is obviated. Replacement labor is reduced to 80% of the original cost. System maintenance consists of: Maintenance labor Personnel Units Duration Monthly Cost of parts requirements of labor salary to replace Console cleaning and filter 1 technician 41 1.5 hours $1,550 $30/unit replacement once a year 1 assistant $1,515 Condenser cleaning once a 1 technician 4 1 hour $1,550 year 1 assistant $1,515 Console extraction pump 1 technician 41 % day 1 technician $50/unit replacement every 3 years 1 assistant 1 assistant Maintenance is carried out by personnel from the Refrigeration Workshop assigned to the Department of Buildings and Land of the land. The total hours that a regular employee works in the Campus is 1,950 hours per year, at a rate of 7.5 hours per day. (They will need to calculate the cost associated with the time staff spend on maintenance tasks for this particular equipment.) The additional costs associated with the operation of the console system are the following: Cost item Reemplazo de aislacin de tubera de refrigerante Frequency Cada 12 aos Cost $12,000 The costs associated with the electrical consumption of the console system are the following: The cost for electricity consumption of the complete console system is $ 175 per day, at a rate of 12 hours per day Assume that the system will operate for 260 business days annually
