Smithy Ltd wants to invest in a new machine cooling system. There are three different systems currently in the market:
|
Water-cooled |
Refrigerant |
Air-cooled |
Initial investment |
488,000 |
990,000 |
1,020,000 |
Regular maintenance costs per annum |
86,000 |
27,000 |
80,000 |
Scheduled major maintenance costs |
46,000 |
72,000 |
44,000 |
Energy cost per annum |
90,000 |
60,000 |
75,000 |
Other operating cost per annum |
107,000 |
45,000 |
- |
Waste per annum |
230,000 kilolitres of water* |
50 litres of NH3** |
- |
Sound tiers (decibels)*** |
95 |
55 |
85 |
The water-cooled system and refrigerant system requires a major maintenance at the end of every five years, while the air-cooled system requires a major maintenance at the end of every 10 years.
The required
Required:
- Calculate the
net present value of the three systems. Which option is superior on financial grounds? - Assume that Smith Ltd is located near a residential district and wants to minimise disruption to local residents and minimise their environmental impact. Which system would you recommend and why?
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