You are the budget manager for the fictional City of Evergreen Fire Department in Washington state. The Department operates 11 fire stations built to a single plan when the city passed a bond issue 30 years ago. The heating, ventilation, and air conditioning (HVAC) systems now need to be replaced. The city’s Facilities Department recommends buying systems made by Mega Energy (ME), which are made in China. These systems each cost $650,000 and each will cost about $95,000 to install. Annual maintenance costs are $24,000 per system in the first year of operation, and these costs are expected to increase by 3.5% per year. A major overhaul is needed every five years at an initial cost of $50,000 per system (this means the first overhaul occurs in year 6 of your analysis). The cost of these overhauls increases by 25% with each successive overhaul, which reflects both inflation and the need for more parts as the systems age. The systems use natural gas and expected fuel costs

QUESTION

You are the budget manager for the fictional City of Evergreen Fire Department in Washington state. The Department operates 11 fire stations built to a single plan when the city passed a bond issue 30 years ago. The heating, ventilation, and air conditioning (HVAC) systems now need to be replaced. The city’s Facilities Department recommends buying systems made by Mega Energy (ME), which are made in China. These systems each cost $650,000 and each will cost about $95,000 to install. Annual maintenance costs are $24,000 per system in the first year of operation, and these costs are expected to increase by 3.5% per year. A major overhaul is needed every five years at an initial cost of $50,000 per system (this means the first overhaul occurs in year 6 of your analysis). The cost of these overhauls increases by 25% with each successive overhaul, which reflects both inflation and the need for more parts as the systems age. The systems use natural gas and expected fuel costs

ANSWER

 Evaluating HVAC System Replacement for Evergreen Fire Department: A Comprehensive Analysis

Introduction

As the budget manager for the fictional City of Evergreen Fire Department, I have been tasked with evaluating the replacement of aging HVAC systems in our 11 fire stations. With the recommendation from the Facilities Department to purchase systems made by Mega Energy (ME), which are manufactured in China, it is crucial to assess the financial implications of this decision. In this analysis, we will consider the initial costs, annual maintenance expenses, and fuel costs associated with the proposed HVAC systems to make an informed decision.

Initial Costs and Installation

The Mega Energy HVAC systems come with a price tag of $650,000 each. Considering the 11 fire stations, the total cost for purchasing the systems amounts to $7,150,000. Additionally, the installation costs for each system are estimated to be $95,000, bringing the total installation expenditure to $1,045,000. These initial costs must be carefully evaluated to ensure they align with the budget constraints and provide long-term value to the department.

Annual Maintenance Costs

Maintaining HVAC systems is essential to ensure their optimal performance. The recommended Mega Energy systems require an annual maintenance cost of $24,000 per system in the first year. However, it is important to note that these costs are projected to increase by 3.5% annually. Over time, the cumulative maintenance expenses for all 11 fire stations will accumulate. Consequently, a comprehensive long-term analysis is required to assess the sustainability of these costs.

Major Overhauls

Inevitably, HVAC systems require major overhauls to extend their lifespan and maintain their efficiency. For the Mega Energy systems, the first major overhaul is expected to occur in year 6 of the analysis. The initial cost for each overhaul is $50,000 per system. It is crucial to consider that these overhaul expenses increase by 25% with each successive overhaul due to inflation and the need for additional parts as the systems age. This escalating cost trend must be accounted for to anticipate future financial commitments.

Fuel Costs

One significant factor in the operation of HVAC systems is the fuel they consume. The Mega Energy systems utilize natural gas as their energy source. To optimize cost efficiency, it is imperative to assess the projected fuel costs associated with these systems. However, the provided information does not explicitly mention the expected fuel consumption or the current rate of natural gas. Thus, we would require additional data to accurately estimate the fuel costs and consider the potential impact on the overall budget.

Conclusion

When evaluating the replacement of HVAC systems for the Evergreen Fire Department, it is crucial to consider various financial aspects. While the recommended Mega Energy systems may provide advanced technology and efficiency, it is essential to assess the initial costs, annual maintenance expenses, major overhaul expenditures, and fuel costs. Conducting a comprehensive cost-benefit analysis, including a comparison with alternative options, will enable us to make an informed decision that ensures the long-term sustainability of the department’s budget while meeting the necessary operational requirements.