Appendix A 257able. Adherence to the concepts and methods presented here and in the
references will lead to sound investment decisions with respect to time
value of money principles.
Example 34
In Section A.3.3 an example involving the evaluation of a baseboard
heating and window air conditioner versus a heat pump was introduced
to illustrate cash flow diagramming (Figure A-2). A summary of the dif-
ferential costs is repeated here for convenience:
- The heat pump costs $1500 more than the baseboard system.
- The heat pump saves $380 annually in electricity costs.
- The heat pump has a $50 higher annual maintenance costs.
- The heat pump has a $150 higher salvage value at the end of 15
years. - The heat pump requires $200 more in replacement maintenance at the
end of year 8.
If MARR is 18%, is the additional investment in the heat pump attrac-
tive?
Using present worth as the measure of worth:
PW = –1500 + 380(P|A,18%,15) – 50(P|A,18%,15) +
150(P|F,18%,15) – 200(P|F,18%,8)
PW = –1500 + 380(5.0916) – 50(5.0916) + 150(0.0835) –
200(0.2660)
PW = –1500.00 + 1934.81 – 254.58 + 12.53 – 53.20 = $139.56
Decision: PW≥0 ($139.56>0.0); therefore, the additional investment for
the heat pump is attractive.
Example 35
A homeowner needs to decide whether to install R-11 or R-19 insu-