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Estimated from straight-line depreciation

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Nico has a 20-year-old oil-fired hot air furnace in his house. He is considering replacing it witha new high-efficiency natural gas furnace. The oil-fired furnace has a scrap value of $500, which itwill retain indefinitely. A maintenance contract costs $300 per year, plus parts. Nico estimates thatparts will cost $200 this year, increasing by $100 per year in subsequent years. The new gasfurnace 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. Themarket value of the gas furnace can be estimated from straight-line depreciation with a salvagevalue of $500 after 10 years. Using a MARR of 10 percent, should the oil furnace be replaced?

Reference no: EM131049141

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