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QUESTION 1 CASE STUDY ANNUAL WORTH ANALYSIS-THEN AND NOW Background and Information Mohamad, owner of an residential furnished apartment's in Dubai, performed an economic analysis 4 years ago when he decided to place an new eefficient central AC unit for each apartments instead of old split units windows type in each room. The estimates used and the annual worth analysis at MARR = 12% are summarized below. Two different AC brands were compared. LG York Cost and installation, $ -26,000 -36,000 Annual maintenance cost, $ per year -800 -300 Salvage value, $ 2,000 3,000 Electrical power savings, $ per year 25,000 35,000 Useful life, years 7 10 The spreadsheet in below sheet is the one Mohamad used to make the decision. York was the clear choice due to its substantially larger AW value, hence York AC units were installed. MARR 12% LG Years Investment and salvage $36,000 $0 $0 Investment Annual and salvage maintenance 0 $26,000 $0 1 $0 $800 2 $0 $800 3 $0 $800 4 $0 $800 5 $0 $800 6 $0 $800 7 $2,000 $800 8 Repair savings $0 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $0 $0 York Annual Repair maintenance savings $0 $0 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $0 $0 $0 $0 9 10 $0 $3,000 $7,025 AW element $6,068 $800 $25,000 The spreadsheet in below sheet is the one Mohamad used to make the decision. York was the clear choice due to its substantially larger AW value, hence York AC units were installed. MARR 12% LG York Years $300 Investment Annual and salvage maintenance 0 $26,000 $0 1 $0 $800 2 $0 $800 3 $0 $800 4 $0 $800 5 $0 $800 6 $0 $800 7 $2,000 $800 8 9 Repair Investment savings and salvage $0 $36,000 $25,000 $0 $25,000 $0 $25,000 $0 $25,000 $0 $25,000 $0 $25,000 $0 $25,000 $0 $0 $0 $3,000 $25,000 $7,025 $18,701.17 Annual Repair maintenance savings $0 $0 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 -$300 $35,000 $300 $35,000 $300 $35,000 $28,499.52 10 $6,068 $800 AW element Total AW During a quick review (year 4 of operation), it was obvious that the maintenance costs and repair savings have not followed (and will not follow) the estimates made 4 years ago. In fact, the maintenance contract cost is going from $300 this year (year 4) to $1200 per year next year and will then increase 7% per year for the next 6 years. Also, the electrical power savings for the last 4 years were $31,312 (year 1), $27,565 ( year 2), $30,4931 year3), and $32,903( year4), as best as Mohamad can determine. He believes savings will decrease by $3,349 per year hereafter. Finally, these 4-year-old AC units are worth nothing on the market now, so the salvage is zero, not $3000. Q4 - With these new estimates, what is the recalculated PW maintenance cost for the YORK AC units? Q5 - With these new estimates, what is the recalculated Total AW cost for YORK AC units. 26 - With these new estimates, what is the recalculated Total FW cost for YORK AC units. Q7 - With these new estimates, what is the recalculated Total PW cost for YORK AC units. Q8 - If these estimates had been made 4 years ago, would YORK still have been the economic choice, why explain your answer than that of LG at $18701.17 09 - What is difference in capital recovery amount for the YORK units with these new estimates? QUESTION 1 CASE STUDY ANNUAL WORTH ANALYSIS-THEN AND NOW Background and Information Mohamad, owner of an residential furnished apartment's in Dubai, performed an economic analysis 4 years ago when he decided to place an new eefficient central AC unit for each apartments instead of old split units windows type in each room. The estimates used and the annual worth analysis at MARR = 12% are summarized below. Two different AC brands were compared. LG York Cost and installation, $ -26,000 -36,000 Annual maintenance cost, $ per year -800 -300 Salvage value, $ 2,000 3,000 Electrical power savings, $ per year 25,000 35,000 Useful life, years 7 10 The spreadsheet in below sheet is the one Mohamad used to make the decision. York was the clear choice due to its substantially larger AW value, hence York AC units were installed. MARR 12% LG Years Investment and salvage $36,000 $0 $0 Investment Annual and salvage maintenance 0 $26,000 $0 1 $0 $800 2 $0 $800 3 $0 $800 4 $0 $800 5 $0 $800 6 $0 $800 7 $2,000 $800 8 Repair savings $0 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $0 $0 York Annual Repair maintenance savings $0 $0 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $0 $0 $0 $0 9 10 $0 $3,000 $7,025 AW element $6,068 $800 $25,000 The spreadsheet in below sheet is the one Mohamad used to make the decision. York was the clear choice due to its substantially larger AW value, hence York AC units were installed. MARR 12% LG York Years $300 Investment Annual and salvage maintenance 0 $26,000 $0 1 $0 $800 2 $0 $800 3 $0 $800 4 $0 $800 5 $0 $800 6 $0 $800 7 $2,000 $800 8 9 Repair Investment savings and salvage $0 $36,000 $25,000 $0 $25,000 $0 $25,000 $0 $25,000 $0 $25,000 $0 $25,000 $0 $25,000 $0 $0 $0 $3,000 $25,000 $7,025 $18,701.17 Annual Repair maintenance savings $0 $0 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 $300 $35,000 -$300 $35,000 $300 $35,000 $300 $35,000 $28,499.52 10 $6,068 $800 AW element Total AW During a quick review (year 4 of operation), it was obvious that the maintenance costs and repair savings have not followed (and will not follow) the estimates made 4 years ago. In fact, the maintenance contract cost is going from $300 this year (year 4) to $1200 per year next year and will then increase 7% per year for the next 6 years. Also, the electrical power savings for the last 4 years were $31,312 (year 1), $27,565 ( year 2), $30,4931 year3), and $32,903( year4), as best as Mohamad can determine. He believes savings will decrease by $3,349 per year hereafter. Finally, these 4-year-old AC units are worth nothing on the market now, so the salvage is zero, not $3000. Q4 - With these new estimates, what is the recalculated PW maintenance cost for the YORK AC units? Q5 - With these new estimates, what is the recalculated Total AW cost for YORK AC units. 26 - With these new estimates, what is the recalculated Total FW cost for YORK AC units. Q7 - With these new estimates, what is the recalculated Total PW cost for YORK AC units. Q8 - If these estimates had been made 4 years ago, would YORK still have been the economic choice, why explain your answer than that of LG at $18701.17 09 - What is difference in capital recovery amount for the YORK units with these new estimates