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

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

Solutions

Expert Solution

Given,

	Ergo light System	Conventional System
Purchase Price	$ 500000	$ 100000
Energy Cost per year	$ 20000	$ 50000
Maintenance Cost per year	$ 2000	$ 10000
Economic Life	20 years	20 years
Discount rate	4%	4%

Recommendation : -

LCC of Ergo light system is lower than that of the conventional lighting system.

Therefore, we recommend the Ergo light system.

jeff jeffy answered 1 week ago

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