ROI, or Return on Investment. Select The Best!

You will be briefed on how to do simple ROI or return on investment calculations for air conditioning unit purchase.

What we are going to go through in this page will not be the method used by financially sound people.

We will just explore the crude, practical, yet accurate way of making the purchasing, or renting decision.


Why do we need ROI?

Because,

Metaphor of inflation, factor in purchasing equipment with highest ROI or return on investment

  • value of our money will reduce from time to time,

  • therefore, it is best that we use the amount of cash we have, to generate more cash, to at least balance the inflation,

  • however, we can’t always keep our cash and not spend it. Money is meant to be spent, for necessities, and affordable accessories.

    If air conditioning is a necessity, then we have to spend that money

  • but that doesn’t mean that we have to go on a "shopping-frenzy" mode.

    We have to spend it wisely. In our case, we have to buy efficient air conditioning unit

  • but do we select the most efficient one straight from the manufacturers’ data sheet?

    Not necessarily, as more efficient air conditioning units will cost more capital, or money. That money will be locked up, and not liquid.

    You can’t circulate it to make more money, and the depreciation of the unit will make the resell value drop every year

  • hence, we will need to select air conditioning unit with highest ROI.

    Simply put, you need a system with lowest total ownership cost


Selecting air conditioning unit with highest ROI:

Follow simple steps of ROI (return on investment) calculation for selecting air conditioners

Follow these simple steps. First,

  1. identify three air conditioning units (after knowing the size you want), with best, second best, and third best of either EER, or SEER

  2. get the information for purchase and rental cost for each unit

  3. get the transportation and installation cost for all units, if applicable.

    Normally, these costs will be included in (1)

  4. get the annual maintenance cost for each air conditioning unit. This figure will be quite low and normally and almost all the time, less than USD 100.00/year/unit.

    Maintenance cost for rented air conditioners will normally be included in (1)

  5. get the average cost of electricity per kWh (kilo-Watt-hour)

  6. now, this is super-vital.

    Please know, how many, hours per day, days per year, and total number of years, you are going to use the system.

    You might want an upgraded version of the air conditioner in few years time, or you might decide to move out of the residence area.

    So, the total number of years is an important data in ROI calculation

  7. you will find the following template useful, to calculate the total ownership cost,


    CostA/C 01: BuyA/C 01: RentA/C 02: BuyA/C 02: Rent
    Initial purchase
    Transport & install
    Maintenance
    Operating*
    TOTAL

    *Operating cost =
    [average electricity cost/kWh] X
    [a/c power rating in kW] X
    [hours/day] X
    [days/year] X
    [total years]

You can add extra columns if you would like to. You will know which one to choose. The one with lowest cost.

Generally, renting an air conditioner will worth it, if the period is less than 1 year.

But it’s good to double check.

This method won’t make me or you, a chartered accountant any time soon.

However, it will make you a happy air conditioning unit owner, that made the right choice, based on simple ROI calculation.



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