Calculate the breakeven number of btus

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Reference no: EM131507077

Question: An office building is considering converting from a coal-burning furnace to one that burns either fuel oil or natural gas. The cost of converting to fuel oil is estimated to be $80,000 initially; annual operating expenses are estimated to be $4,000 less than that experienced when using the coal furnace. Approximately 140,000 Btus are produced per gallon of fuel oil; fuel oil is anticipated to cost $2.20 per gallon. The cost of converting to natural gas is estimated to be $60,000 initially; additionally, annual operating and maintenance expenses are estimated to be $6,000 less than that for the coal-burning furnace. Approximately 1,000 Btus are produced per cubic foot of natural gas; it is estimated that natural gas will cost $0.04 per cubic foot. A planning horizon of 20 years is to be used. Zero market values and a MARR of 10% per year are appropriate. Perform a sensitivity analysis for the annual Btu requirement for the heating system.

(Hint: First calculate the breakeven number of Btus (in thousands). Then determine AWs if Btu requirement varies over ±30% of the breakeven amount.)

Reference no: EM131507077

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