The teachers' office area in the Antonio Lucchetti building has problems associated with the air conditioning system. Currently the existing system is a centrifuge. The Buildings and Grounds Department is evaluating two alternatives to address the situation. The first alternative consists of replacing the 50-ton centrifuge (chiller), the handler system, and its isolation system. The initial costs are as follows: Unit Cost Useful life Centrifuge 50 tons $ 33,000 15 years Handlers $ 47,000 30 years Installation labor * $ 1,400 n / a Materials for initial installation ** $ 2,500 n / a Insulation system $ 22,000 n / a * It is reduced to 40% of the original cost in case of equipment replacement. ** The cost of replacement materials is also assumed 40% of the original cost. Maintenance of the centrifuge consists of Maintenance work Personnel requirements Duration of work Monthly salary Cost Cleaning every 6 months 1 technician 1 assistant 1 day $ 1,550 $ 1,515 Annual maintenance of water pump 1 technician 1 assistant 1/2 day $ 1,550 $ 1,515 Annual manufacturer visit $ 1,000 Fan replacement every three years 1 technician 1 assistant 1 hour $ 1,550 $ 1,515 $ 150 Maintenance is carried out by personnel from the Refrigeration Workshop assigned to the Department of Buildings and Land of the land. The total hours that a regular employee works in the Campus is 1,950 hours per year, at a rate of 7.5 hours per day. (They will need to calculate the cost associated with the time staff spend on maintenance tasks for this particular equipment.) Additional costs associated with operating the centrifuge are as follows Cost item Frequency Cost Cold water pipe insulation replacement Every 6 years $ 22,000 The costs associated with the electricity consumption of the centrifuge system are the following: The cost of daily electricity consumption for a 50-ton centrifuge is $ 150 per day. The cost for electricity consumption of the driver is $ 25 per day. The centrifuge system operates continuously.

Now, assume that the system will operate for 260 business days annually. 1. Perform a present value analysis to select the best alternative to. a. Consider that the replacements will be for identical units b. The residual value of the equipment corresponds to the cost of disposal of the unit c. Analyze a 30-year horizon d. Consider an interest rate of 6%