hich alternative (augmentation or lease of a new system) should be selected as part of the redesign of the modified emergency electrical power system.
The emergency electrical supply system of a hospital owned by a private medical service corporation Show more The emergency electrical supply system of a hospital owned by a private medical service corporation is currently supported by an 80-kW diesel-powered electrical generator that was put into service five years ago (capital investment = $210000). An engineering firm is designing modifications to the electrical and mechanical systems of the hospital as part of an expansion project. The redesigned emergency electrical supply system will require 120 Kw of generating capacity to serve the increasing demand. Two preliminary designs for the system are being considered. The first involves the augmentation of the existing 80-kW generator with a new 40 k-W diesel-powered unit. The second design includes replacement of the existing generator with the best available alternative a new turbine-powered unit with 120 kW of generating capacity. Both alternatives will provide the same level of service to the operation of the emergency electrical supply system. The new turbine-powered system if selected will be leased by the hospital for a 10-year period. The following additional estimates have been generated for use in the replacement analysis. 80 kW current generator 40 kW augmentation New Turbine-powered system Capital Investment $90000 (1) $140000 $10000 (2) Annual lease amount 0 0 $39200 Operating hours per year 260 260 260 Operating expenses per hour (3) $85 $35 $95 Other expenses per year (3) $3500 $1000 3100 Useful life in years 10 10 10 Salvage Value $30000 $38000 0 NOTES: A)Estimate based on the current market value of the 80-kW present system B)Deposit required by the terms of the contract to lease the new turbine-powered system. It is refundable at the end of the contract. C)The operating and maintenance expense per hour of operation and the other annual expense amounts for all alternatives are expected to increase at the rate of 4% per year The corporations MARR is 12% per year. Which alternative (augmentation or lease of a new system) should be selected as part of the redesign of the modified emergency electrical power system. Support your conclusion with appropriate calculations Show less
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