Question
In: Finance
A company must repair their main air conditioning system, and they are considering two alternatives. (1)...
A company must repair their main air conditioning system, and they are considering two alternatives.
(1) purchase a new compressor for €20,000 that will have a future salvage value of €2,000 at the end of its 15-year life; or
(2) purchase two high efficiency heat pumps for €28,000 that will have a future salvage value of €3,000 at the end of their 15-year useful life.
The new compressor will save the company €6,500 per year in electricity costs, and the heat pumps will save €8,500 per year. The company’s discount rate is 12%.
Using the BCR method (Benefit/Cost Ratio), which alternative project should the company select? Is the answer the same if life cycle costs (LCC) are used to compare the projects?
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Answer:
jeff jeffy answered 1 year agoRelated Solutions
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main
plant. Kim must install one or the other of the units; otherwise,
the highly profitable plant would have to shut down. Two units are
available, HCC and LCC (for high and low capital costs,
respectively). HCC has a high capital cost but relatively low
operating costs, while LCC has a low capital cost but higher
operating costs because it uses more electricity. The costs of the
units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main
plant. Kim must install one or the other of the units; otherwise,
the highly profitable plant would have to shut down. Two units are
available, HCC and LCC (for high and low capital costs,
respectively). HCC has a high capital cost but relatively low
operating costs, while LCC has a low capital cost but higher
operating costs because it uses more electricity. The costs of the
units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main
plant. Kim must install one or the other of the units; otherwise,
the highly profitable plant would have to shut down. Two units are
available, HCC and LCC (for high and low capital costs,
respectively). HCC has a high capital cost but relatively low
operating costs, while LCC has a low capital cost but higher
operating costs because it uses more electricity. The costs of the
units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install
a new air conditioning unit in its main plant. Kim must install one
or the other of the units; otherwise, the highly profitable plant
would have to shut down. Two units are available, HCC and LCC (for
high and low capital costs, respectively). HCC has a high capital
cost but relatively low operating costs, while LCC has a low
capital cost but higher operating costs because it uses more
electricity. The costs of the units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main
plant. Kim must install one or the other of the units; otherwise,
the highly profitable plant would have to shut down. Two units are
available, HCC and LCC (for high and low capital costs,
respectively). HCC has a high capital cost but relatively low
operating costs, while LCC has a low capital cost but higher
operating costs because it uses more electricity. The costs of the
units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main
plant. Kim must install one or the other of the units; otherwise,
the highly profitable plant would have to shut down. Two units are
available, HCC and LCC (for high and low capital costs,
respectively). HCC has a high capital cost but relatively low
operating costs, while LCC has a low capital cost but higher
operating costs because it uses more electricity. The costs of the
units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main
plant. Kim must install one or the other of the units; otherwise,
the highly profitable plant would have to shut down. Two units are
available, HCC and LCC (for high and low capital costs,
respectively). HCC has a high capital cost but relatively low
operating costs, while LCC has a low capital cost but higher
operating costs because it uses more electricity. The costs of the
units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main
plant. Kim must install one or the other of the units; otherwise,
the highly profitable plant would have to shut down. Two units are
available, HCC and LCC (for high and low capital costs,
respectively). HCC has a high capital cost but relatively low
operating costs, while LCC has a low capital cost but higher
operating costs because it uses more electricity. The costs of the
units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main
plant. Kim must install one or the other of the units; otherwise,
the highly profitable plant would have to shut down. Two units are
available, HCC and LCC (for high and low capital costs,
respectively). HCC has a high capital cost but relatively low
operating costs, while LCC has a low capital cost but higher
operating costs because it uses more electricity. The costs of the
units are...
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install...
Kim Inc. must install a new air conditioning unit in its main
plant. Kim must install one or the other of the units; otherwise,
the highly profitable plant would have to shut down. Two units are
available, HCC and LCC (for high and low capital costs,
respectively). HCC has a high capital cost but relatively low
operating costs, while LCC has a low capital cost but higher
operating costs because it uses more electricity. The costs of the
units are...
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