Course: Engineering Economic Analysis
The following is one problem divided in parts. It is not two different problems, it is just one problem.
The faculty office area of a building has problem associated with the air conditioning system. Currently the existing system is centrifugal. The Department of Buildings and Grounds is evaluating replacing the 50-ton chiller, the handling system, and its isolating system to address the situation. 15 years The initial costs are as follows: Unit Cost Useful Life 50-ton chiller $33,000 Handlers $47,000 30 years Labor for installation* $1,400 N/A Materials for initial installation** $2,500 N/A Isolating system $22,000 N/A *Reduced to 40% of the original cost in case of equipment replacement. **The cost of replacement materials is also assumed to be 40% of the original cost. Centrifuge maintenance consists of Maintenance Work Cleaning every 6 months Cost Staff Requirements Work Duration 1 technician 1 day 1 assistant 1 technician 12 day 1 assistant Monthly Salary $1,550 $1,515 $1,550 $1,515 Annual water pump maintenance Annual visit of the manufacturer $1,000 Replacement of fans every three years 1 technician 1 assistant 1 hour $1,550 $1,515 $150 The maintenance is carried out by personnel from the Refrigeration Workshop. The total hours that a regular employee works at the building is 1,950 hours per year, at a rate of 7.5 hours per day. (Calculate the cost associated with the time staff spends on maintenance of these particular pieces of equipment.) The additional costs associated with the operation of the centrifuge are as follows: Cost Item Frequency Cold water pipe insulation replacement Every 5 years Cost $22,000 The costs associated with electrical consumption of the centrifuge system are as follows: The cost for daily electrical consumption of a 50-ton centrifuge is $150 per day. The cost for electric consumption of the handler is $25 per day. The centrifuge system operates continuously. a. c. Assume that the system will operate for 260 working days annually. 1. Perform a present value analysis Consider that the replacements will be for identical units and equipment has no residual value. b. Analyze a horizon of 30 years Consider an interest rate of 6% 2. Consider that the equipment will be purchased by a manufacturing industry: Assume that the console system previously discussed will be used to provide air conditioning in a manufacturing industry. It will be installed in a certain production area that generates an income of $450,000 gross per year. Operating costs are $125,000 per year. Depreciate the console system, in operating condition, using the Straight-Line Method and determine the after-tax cash flow. Calculate the internal rate of return before and after taxes. Perform the analysis only for the first time the equipment is installed (Only the first cycle, depending on the life of the consoles) The faculty office area of a building has problem associated with the air conditioning system. Currently the existing system is centrifugal. The Department of Buildings and Grounds is evaluating replacing the 50-ton chiller, the handling system, and its isolating system to address the situation. 15 years The initial costs are as follows: Unit Cost Useful Life 50-ton chiller $33,000 Handlers $47,000 30 years Labor for installation* $1,400 N/A Materials for initial installation** $2,500 N/A Isolating system $22,000 N/A *Reduced to 40% of the original cost in case of equipment replacement. **The cost of replacement materials is also assumed to be 40% of the original cost. Centrifuge maintenance consists of Maintenance Work Cleaning every 6 months Cost Staff Requirements Work Duration 1 technician 1 day 1 assistant 1 technician 12 day 1 assistant Monthly Salary $1,550 $1,515 $1,550 $1,515 Annual water pump maintenance Annual visit of the manufacturer $1,000 Replacement of fans every three years 1 technician 1 assistant 1 hour $1,550 $1,515 $150 The maintenance is carried out by personnel from the Refrigeration Workshop. The total hours that a regular employee works at the building is 1,950 hours per year, at a rate of 7.5 hours per day. (Calculate the cost associated with the time staff spends on maintenance of these particular pieces of equipment.) The additional costs associated with the operation of the centrifuge are as follows: Cost Item Frequency Cold water pipe insulation replacement Every 5 years Cost $22,000 The costs associated with electrical consumption of the centrifuge system are as follows: The cost for daily electrical consumption of a 50-ton centrifuge is $150 per day. The cost for electric consumption of the handler is $25 per day. The centrifuge system operates continuously. a. c. Assume that the system will operate for 260 working days annually. 1. Perform a present value analysis Consider that the replacements will be for identical units and equipment has no residual value. b. Analyze a horizon of 30 years Consider an interest rate of 6% 2. Consider that the equipment will be purchased by a manufacturing industry: Assume that the console system previously discussed will be used to provide air conditioning in a manufacturing industry. It will be installed in a certain production area that generates an income of $450,000 gross per year. Operating costs are $125,000 per year. Depreciate the console system, in operating condition, using the Straight-Line Method and determine the after-tax cash flow. Calculate the internal rate of return before and after taxes. Perform the analysis only for the first time the equipment is installed (Only the first cycle, depending on the life of the consoles)
