The Town of Sustainability is planning to rehabilitate the fountain of youth. The fountain has...
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Accounting
The Town of Sustainability is planning to rehabilitate the fountain of youth. The fountain has a pump that can be replaced or refurbished.
Option A:
Replace the pump with a new pump at a cost of $12,000.
In years 7 and 14 the pump needs maintenance at a cost of $2,300 each occurrence. The interest rate is 5%. The life of the new pump is 15 years and there is no salvage value at the end of the 15-year life.
Based on the life cycle cost analysis what option do you recommend?
Option B:
Maintain the existing pump based on the following schedule:
Today, $6,500
Year 3, $400
Year 5, $1,500
Year 8, $900
Year 12, $1,200
Year 14, $1,700
The interest rate is 5% and there is no salvage value at the end of the 15-year life.
Based on the life cycle cost analysis what option do you recommend?
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