Smithy Ltd wants to invest in a new machine cooling system. There are three different systems currently in the market:

	Water-cooled	Refrigerant	Air-cooled
Initial investment	488,000	990,000	1,020,000
Regular maintenance costs per annum	86,000	27,000	80,000
Scheduled major maintenance costs	46,000	72,000	44,000
Energy cost per annum	90,000	60,000	75,000
Other operating cost per annum	107,000	45,000	-
Waste per annum	230,000 kilolitres of water*	50 litres of NH3**	-
Sound tiers (decibels)***	95	55	85

*Potential impact of wastewater:https:/iwa.co.nz/our-science/freshwater/tools/kaitiaki_tools/land-use/waste-water-treatment/impacts

**Potential impact of ammonia:https://www.worksafe.govt.nz/about-usews-and-media/technical-bulletin-ammonia-refrigeration

***Decibel meter:https://www.earq.com/hearing-health/decibels#:~:text=Sound%20is%20measured%20in%20units,times%20more%20intense%2C%20or%20powerful.

The water-cooled system and refrigerant system requires a major maintenance at the end of every five years, while the air-cooled system requires a major maintenance at the end of every 10 years.

The required rate of return is 10% for all capital investments. Assume a time horizon of 12 years. Ignore tax effects.

Required:

1. Calculate the net present value of the three systems. Which option is superior on financial grounds?
2. Assume that Smith Ltd is located near a residential district and wants to minimise disruption to local residents and minimise their environmental impact. Which system would you recommend and why?

PVIF Table

\fPeriods Interest rates (r) (n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7 786 7.367 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 19 17.226 15.679 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 20 18.046 16.351 14.878 13.590 12.462 11.470 10.594 9.818 9.129 8.514 Periods Interest rates (r) (n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 6.492 6.194 5.918 5.660 5.421 5.197 4.988 7.793 4.611 4.439 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 15 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 16 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 17 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 18 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 19 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 20 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870