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A company is considering converting from a coal-burning furnace to one that burns either fuel oil or natural gas. Alternative 1 (fuel oil): The cost
A company is considering converting from a coal-burning furnace to one that burns either fuel oil or natural gas. Alternative 1 (fuel oil): The cost of converting to fuel oil is estimated to be $80,000 initially; annual operating expenses are estimated to be $4,000 less than that experienced when using the coal furnace. Approximately 140,000 Btus are produced per gallon of fuel oil; fuel oil is anticipated to cost $2.20 per gallon. Thus, the AW can be computed as follows, where X denotes the required number of Btus (in thousands): AWoil(10%)=$80,000(A/P,10%,20)+$4,000($2.20/140)(X) Alternative 2 (natural gas): The cost of converting to natural gas is estimated to be $60,000 initially; additionally, annual operating and maintenance expenses are estimated to be $6,000 less than that for the coal-burning furnace. Approximately 1,000 Btus are produced per cubic foot of natural gas; it is estimated that natural gas will cost $0.04 per cubic foot. A planning horizon of 20 years is to be used. Zero market values and a MARR of 10% per year are appropriate. Find the breakeven point of the annual Btu requirement (X) and perform a sensitivity analysis on percent changes (20%,10%, +10%, and +20% ) of the annual Btu requirement. You may need the following to solve the problem: (A/P,10%,20)=0.1175 A
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