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2. The city administration is considering refurbishing the lighting system of its administration building. After an...

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Finance

2. The city administration is considering refurbishing thelighting system of its administration building. After an initialinvestigation, the city procurement office has narrowed down thechoices to the following two options: a. Option 1 is an Ergolightsystem that costs $500,000 to purchase and install. The energy costfor option 1 is $20,000, and its maintenance cost is $2,000. b.Option 2 is a conventional system that costs $100,000 to purchaseand install. The energy cost for option 2 is $50,000, and itsmaintenance cost is $10,000. Both systems are expected to last for20 years. Assume that the discount rate is 4% and all future costsare paid at the end of the year. 3. Which lighting system shouldthe city select based on LCC considerations?

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3.6 Ratings (435 Votes)
GivenErgo light SystemConventional SystemPurchase Price 500000    See Answer
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