CHAPTER IV

ENGINEERING ECONOMY

4.1 Cost Estimates

From Conception Carrier Air Conditioning Corporation, Capistrano-

Yacapin Street, Cagayan de Oro City.

EQUIPMENT QTY. PRICE PER UNIT(PHP)

5 ton – Floor 13 P 98,000.000

Mounted CFV ACU
2 ton – Crystal 3 P 66,000.00
Carrier

Installation Cost
P 10,500.00 per unit
For type K copper coil tubing with insulator, price is P 4,775.00 per 15 ft.

For 5 ton unit, maximum pipe length is 50 meters or 164.042 ft per unit.
For 2 ton unit, maximum pipe length is 20 meters or 65.62 ft per unit.

For 5 ton unit:

Cost of piping = P 4,775.00 (164.042/15)
Cost of piping = P 52,220.04
For 2 ton unit:
Cost of piping = P 4,775.00 (65.62/15)
Cost of piping = P 20,889.04

Total cost of piping = (P 20,889.04 x 3) + (P 52,220.04 x 13)

Total cost of piping = P 741,527.64
Energy Consumption of the Unit
From CEPALCO, as of April 2019, the rate of electricity is P 7.55/ kWHr
Power Rating
5 tons – 5.2 KW
2 tons – 2.35 KW

The maximum operation of the 5 tons and 2 tons unit on average is 10

hours per day or 2,690 hours per year.

Energy Consumption of Unit = [(5.2kw)(13) + (2.35kw)(3)][(2,690

hrs/yr)(10hrs)]
Energy Consumption of Unit = P 2,025,570.00

ANNUAL COST
Annual Income of the Building:
Estimated no. of students per semester (SHS & College) = 14,000
Estimated tuition fee of student per semester (SHS & College) =
P18,000.00

Semestral income of the building = (no. of students)(tuition fee per student)

Semestral income of the building = (14,000)(P 18,000.00)
Semestral income of the building = P 252,000,000.00
Annual income = P 504,000,000.00

ACU Usage Fee per Student = P 1,000.00

Annual income for ACU = (14,000)(P 1,000.00)(2)
Annual income for ACU = P 28,000,000.00
Maintenance Costs:
Maintenance cost of unit per 3 months: P 32,250.00
Annual maintenance cost: (32,250 x 16)(4)
Annual maintenance cost: P 2,064,000.00
Maintenance cost of the building: P 5,040,000.00

Total annual maintenance cost = P 129,000.00 + P 5,040,000.00

Total annual maintenance cost = P 5,169,000.00

Depreciation
Expected life of air conditioning units is 15 years. Salvage value of first

cost and interest rate is presumed to be 10% and 12%, respectively. The building

costs P 150,000,000.00. Expected life for a building is 50 years and salvage

value is 10% of the first cost.

Formula:

Depreciation (D) = [(Co- CL)i]/[(1+i)n- 1] - Sinking Fund Method

Where:

Co – first cost

CL – salvage value

i – interest rate

n – useful life

For Air Conditioning Unit

*5 tons unit: D = [(98,000.00 – 9,800.00)(0.12)]/[(1+0.12)15-1]

D = P 2,365.90
*2 tons unit: D = [(66,000.00 – 6,600.00)(0.12)]/[(1+0.12)15-1]
D = P 1,593.36

Total depreciation of unit = P 2,365.90 + P 1,593.36

Total depreciation of unit = P 3,959.26

For the building

D = [(150,000,000.00 – 15,000,000.00)(0.12)]/[(1+0.12)50-1]
D = P 56,294.57

Total Depreciation = P 2,365.90 + P 1,593.36 + P 56,294.57

Total Depreciation = P 60,253.83

Salary and Wages

Estimated number of employees : 200

Estimated salary of employees : P 15,000.00

Monthly Salary of employees = (200)(P 15,000.00)

Monthly Salary of employees = P 3,000,000.00
Annual Salary of employees = P 36,000,000.00

Taxes and Insurance

Taxes and insurance is five percent of the income.

= (P 504,000,000.00)(0.05)

= P 25,200,000.00
Energy Consumption

Total annual energy consumption = P 2,025,570.00(12)

Total annual energy consumption = P 24,306,840.00

SUMMARY OF ANNUAL COSTS

Depreciation = P 60,253.83
Salary and Wages = P 36,000,000.00
Taxes and Insurance = P 25,200,000.00

Energy Consumption = P 24,306,840.00

Total Annual Costs = P 85,567,093.83

SUMMARY OF ANNUAL COSTS FOR AIR CONDITIONING UNIT

Depreciation = P 3,959.26
Maintenance cost: P 2,064,000.00
Energy Consumption = P 24,306,840.00

Total Annual Costs of ACU= P 26,374,799.26

4.4 Financial Statement

(Use the data for the air conditioning units.)

Rate of Return = Net Annual Profit/Total Investment

Net Annual Profit = Annual Income – Total Annual Cost

 = P 28,000,000.00 – P 26,374,799.26

= P 1,625,200.74

Invested Capital = Unit Cost + Piping cost + Installation Cost

= P 1,472,000.00 + P 741,527.64 + P 168,000.00

= P 2,381,527.64

Rate of Return = Net Annual Profit/Total Investment

= P 1,625,200.74 / P 2,381,527.64

Rate of Return = 0.6824 or 68.24%

Payback Period

Payback Period = Invested Capital/Net Annual Profit

= P 2,381,527.64 / P 1,625,200.74

Payback Period = 1.5 years

= 1 year + 0.5 years (12 months/year)

Payback Period = 1 year 6 months