Computer-controlled hvac system with more efficient version

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Reference no: EM131489353

Due to rising utility costs, Los Medanos Community Hospital, a not-for-profit entity, wants to replace its existing computer-controlled HVAC system with a more efficient version. The existing system was purchased 3 years ago for $240,000 and is being depreciated on a straight-line basis over an 8 year life span to a salvage value of $0. Although the current book value for the existing system is $150,000, this system could be sold for only $80,000 today. The new system would cost $600,000 and would be depreciated on a straight-line basis over a 5 year life span to a salvage value of $0. The new HVAC system would reduce utility costs by $200,000 per year for 5 years and would not affect the level of net working capital. The economic life of the new system is 5 years and the required rate of return on the project is 8%. How do I determine NPV of the project using the incremental NPV approach?

Reference no: EM131489353

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