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CAPITAL INVESTMENT DECISIONS LAB 8 When the T.O.T.E.S. management team has their final meeting for the year, they review the financial statements and make capital expenditure decisions for the upcoming year. The company's heating and air conditioning system (HVAC) for the plant needs replacing. Tonia and Tara place a strong emphasis on being an environmentally responsible company, they are considering installing a solar system rather than a traditional system. They are going to decide which system to install depending on the investment analysis presented at this final meeting Complete the Net Present Value investment analysis for the costs of installing a traditional factory HVAC system or a solar system. The company uses a discount rate of 16% for evaluating capital projects using net present value. The data regarding the costs and savings for the two systems under consideration are shown below in Exhibit 8-C. Option 1 is the traditional factory HVAC system. Option 2 is the solar system. EXHIBIT 8-A: Capital Investment Options T.O.T.E.S Capital Investment Options Cost of upgrade Utility Company Credit, Year 1 Annual savings in utility bills, years 1-10 Major maintenance, Year 5 Annual maintenance Minor maintenance, Years 3 Federal Tax Credit, Years 1 - 5 State Tax Rebate, Year 2 Option 1 Option 2 $ 80,000 $250,000 $ 25,000 S 1,000 $15,000 S 5,000 $ 5,000 s 500 $ $ S 2,000 $ 12,500 S 5,000 Lise the templates on the following page, to help you evaluate the systems. Present value tables are available in your textbook or from the instructor 45 TOTES. CASE STUDY-TETRA T.O.T.E.S. Investment Analysis Option 1 Discount Rate: %) Amount NPV Factor Year Present Value Cost of upgrade Annual savings in utility bills Major maintenance Annual maintenance Net Present Value of Option 1 T.O.T.E.S. Investment Analysis Option 2 Discount Rate: _%) Option 2 NPV Factor Year Present Value Cost of upgrade Utility Company Credit Annual savings in utility bills Minor maintenance Major maintenance Federal Tax Credit State Tax Rebate Net Present Value of Option 2 Based on your analysis, which system should T.O.T.E.S. purchase and install? Why or why not? 46