Question

A mechanical engineer must recommend a new heating system to a commercial building owner. The owner intends to sell the building in 15 years. A gas fired furnace option has a design life of 5 years, an initial cost of $11,000, a replacement cost of $6,000 and annual operating costs of $3,500, but adds no value to the building when sold. A geothermal heat pump system has a design life of 10 years, an initial cost of $18,000, a replacement cost of $9,000, annual operating costs of $2,500, and increases the value of the building by $7,000, when it is sold at the end of year 15. Determine the equivalent uniform annual cost (EUAC) of costs for the option the engineer should recommend at an interest rate of 5.7%. Express your answer in $ to the nearest $10.

Answer 1

The two option with cost and benefitas below

	Furnace	Heat pump
Initial cost	10000	19000
Replacement cost	6000	10000
Annual operating cost	3500	2500
Salvage value	0	5000

The installed cost and relacement cost of both option is givenbelow. If the initial cost is C and replacement cost for ever tyear isR and operating cost is O. Then EUAC is

The value of the house increases by 5000 at the end of 15 years.Then EUAB is

Therefore, EUAC for second option is

The recomendable option should be Heat pump.