Reference no: EM131993970
In a company’s renovation of a small office building, two feasible alternatives for upgrading the heating, ventilation, and air conditioning (HVAC) system have been identified. Either Alternative A or Alternative B must be implemented. The costs are as follows:
Alternative A:
Rebuild (overhaul) the existing HVAC
Equipment,labor,and material store build.............$18,000
Annual cost of electricity..................................... $32,000
Annual maintenance expenses .............................$2400
Alternative B:
Install a new HVAC system that utilizes existing ductwork
Equipment, labor, and materials to install ............ $ 60,000
Annual cost of electricity........................................ $ 9000
Annual maintenance expenses ...............................$16,000
Replacement of a major component at EOY (4).......$9400
At the end of eight years, the estimated market value for Alternative A is $2,000 and for Alternative B it is $8,000. Assume that both alternatives will provide comparable service (comfort) over an eight-year period, and assume that the major component replaced in Alternative B will have no market value at EOY eight.
(1) Draw net cash flow for each alternative.
(2) Use a cash-flow table and end-of-year convention to tabulate the net cash flows for both alternatives.
(3) Determine the annual net cash-flow difference between the alternatives (B − A).