Nico has a 20-year-old oil-fired hot air furnace in his house. He is considering replacing it with a new high-efficiency natural gas furnace. The oil-fired furnace has a scrap value of $500, which it will retain indefinitely. A maintenance contract costs $300 per year, plus parts. Nico estimates that parts will cost $200 this year, increasing by $100 per year in subsequent years. The new gas furnace will cost $4500 to buy and $500 to install. It will save $500 per year in energy costs. The maintenance costs for the gas furnace are covered under guarantee for the first five years. The market value of the gas furnace can be estimated from straight-line depreciation with a salvage value of $500 after 10 years. Using a MARR of 10 percent, should the oil furnace be replaced?

Nico has a 20-year-old oil-fired hot air furnace in his house. He is considering replacing it with a new high-efficiency natural gas furnace. The oil-fired furnace has a scrap value of $500, which it will retain indefinitely. A maintenance contract costs $300 per year, plus parts. Nico estimates that parts will cost $200 this year, increasing by $100 per year in subsequent years. The new gas furnace will cost $4500 to buy and $500 to install. It will save $500 per year in energy costs. The maintenance costs for the gas furnace are covered under guarantee for the first five years. The market value of the gas furnace can be estimated from straight-line depreciation with a salvage value of $500 after 10 years. Using a MARR of 10 percent, should the oil furnace be replaced?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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