Menlo College need to acquire a new boiler for its heating system. It considers two altenative models. No matter which model will be chosen, it will be replaced indefinitely. It will have no additional impact on cash flow other than listed below. Menlo College uses 12% as its cost ofcapital and the tax rate is 35% Both models will be depreciated using straight line depreciation to zero and will have zero salvage value. Both boilers are expected to Nur Nur be used (consume electricity) for 5,000 hours a year. The current cost of electricity is 15 cc/kWih 7 Model T costs S 15,000, has annual maintenance cost of $800 and lasts for 6 years. It consumes 22 kW of electricity per hour. 9 b). Which model should you choose with current electricity costs? Sco Model A costs S 25,000, has annual maintenance cost of $1,000 and lasts for 12 years. It consumes 20 kW of electricity per hour. a). Find annual electricity costs for each model c). What should be the electricity cost per kWh that would make you indifferent between two models? 8 10 Model A Model T 12 13 14 Service life (years) 15 Initial Cost 16 Operating Cost 17 Depreciation $25,000.00 $15,000.00 S800.00 $1,000.00 $8 Electricity consumption, 18 kW per hour 20.00 22.00 35% 12% 20 Tax Rate 21 Requirod Retun 22 Annual use 23 Cost of electricity, S/kWhS 5,000 hours 0.15 Maximum Score Score 25 a). Find annual electricity costs for each model Model Model T 27 Annual electricity cost 28 29 b). Which model should you choose with current electricity costs? 30 10 1Answer 34 Model A 12 36 Year 37 OCF 38 Investment 39 FCF 41 NPV 42 EAC Model 1 46 Year 47 OCF 48 Investment 49FCF 51 NPV 52 EAC 53 54 Model A PV amount Time Time Factor Tax Factor (6) (2) x (4) Item Amount 57 Electricity Cost ing Cost iation shield 60 Investment 61 62 NPV 63 EAC 64 Model T PV amount Time Time Factor Tax Factor (6) (2) x (4) Item Amount 67 Electricity Cost ing Cost iation shield 70 Investment 2 NPV 73 EAC 74 75 76 c). What should be the electricity cost per kWh that would make you indifferent between two models? 78 Difference 79 80 Electricity cost