Please use excel and demonstrate the formulae used. A regional architecture/contractor firm purchased an HVAC unit for...

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Please use excel and demonstrate the formulae used.
A regional architecture/contractor firm purchased an HVAC unitfor $25,000 that was expected to last 15 years. It has a salvagevalue of $0 in 10 more years. The annual operating cost of thisunit started at $2,000 in the first year and has increased steadilyat $250 per year ever since; last year the cost was $3,000. Itsbook value is now $13,000. They are building a new wing at theirregional headquarters to accommodate a much larger computer designemphasis requiring larger, faster computers, architecturalprinters, e-storage for a construction repository of previousdesigns, and an increased human heat load. They can buy anadditional unit to air-condition the new wing for $18,000. It willhave a service life of 15 years, a net salvage of $0 at that time,and a $3,000 market value after 10 years. It will have annualoperating costs of $1,800 in the first year, increasing at $100 peryear. As an alternative, they can buy a new unit to heat and coolthe entire building for $35,000. It will last for 15 years and havea net salvage of $0 at that time; however, it will have a marketvalue of $8,500 after 10 years. It will have first-year operatingcosts of $3,700/year, increasing at $200 per year. The present unitcan be sold now for $7,000. MARR is 11%percent, and the planninghorizon is 10 years.
a) Clearly show the cash flow profile for each alternative usinga cash flow approach (insider's viewpoint approach).
b) Using a PW analysis and a cash flow approach (insider'sviewpoint approach), decide which one is the more favorablealternative.
c) Clearly show the cash flow profile for each alternative using anopportunity cost approach (outsider's viewpoint approach).
d)UsingaPWanalysisandanopportunitycostapproach(outsider'sviewpointapproach),decide which one is the more favorable alternative.

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Cash flow for each alternative Alternative 1 Purchase of New AC and continue with old unit Alternative 2 Purchase of new unit Year 1 2 3 4 5 6 7 8 9 10 Alternative 1 outflow New AC purchase cost 1800000 operating cost of AC 300000 310000 320000 330000 340000 350000 360000 370000 380000 390000 operating cost of HVAC 325000 350000 375000 400000 425000 450000 475000 500000 525000 550000 2425000 660000 695000 730000 765000 800000 835000 870000 905000 940000 Inflow Market value of AC 300000 Net outflow 2425000 660000 695000 730000 765000 800000 835000 See Answer

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Transcribed Image Text

Please use excel and demonstrate the formulae used.A regional architecture/contractor firm purchased an HVAC unitfor $25,000 that was expected to last 15 years. It has a salvagevalue of $0 in 10 more years. The annual operating cost of thisunit started at $2,000 in the first year and has increased steadilyat $250 per year ever since; last year the cost was $3,000. Itsbook value is now $13,000. They are building a new wing at theirregional headquarters to accommodate a much larger computer designemphasis requiring larger, faster computers, architecturalprinters, e-storage for a construction repository of previousdesigns, and an increased human heat load. They can buy anadditional unit to air-condition the new wing for $18,000. It willhave a service life of 15 years, a net salvage of $0 at that time,and a $3,000 market value after 10 years. It will have annualoperating costs of $1,800 in the first year, increasing at $100 peryear. As an alternative, they can buy a new unit to heat and coolthe entire building for $35,000. It will last for 15 years and havea net salvage of $0 at that time; however, it will have a marketvalue of $8,500 after 10 years. It will have first-year operatingcosts of $3,700/year, increasing at $200 per year. The present unitcan be sold now for $7,000. MARR is 11%percent, and the planninghorizon is 10 years.a) Clearly show the cash flow profile for each alternative usinga cash flow approach (insider's viewpoint approach).b) Using a PW analysis and a cash flow approach (insider'sviewpoint approach), decide which one is the more favorablealternative.c) Clearly show the cash flow profile for each alternative using anopportunity cost approach (outsider's viewpoint approach).d)UsingaPWanalysisandanopportunitycostapproach(outsider'sviewpointapproach),decide which one is the more favorable alternative.