Budget Problems M17, 1-2; M18, 1-2; M19, 1-3; M20, 1-2; M21, 1-2 Questions Type your name here, Last Name First 18.2. The city administration is con
Budget Problems M17, 1-2; M18, 1-2; M19, 1-3; M20, 1-2; M21, 1-2 Questions
Type your name here, Last Name First
18.2. 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:
¨ 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.
¨ 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.
Which lighting system should the city select based on LCC considerations?
x
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Exercise 18.2
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City administration is considering refurbishing the lighting system of its administration building.
After initial investigation, the city procurement office has narrowed down the choices into the following two options:
Option 1 is a Ergolight system, which costs $500,000 to purchase and install.
Option 2 is a convention system, which costs $100,000 to purchase and install.
The system is expected to last for 20 years
The energy and maintenance cost for Option 1 is $20,000 and $2,000.
The energy and maintenance cost for Option 2 is $50,000 and $10,000.
Assume all gas costs paid at end of year.
Discount rate: 4%
Which lighting system should the city selected based on financial consideration.
Note: please use LCC analysis to facilitate the decision-making.
Parameters/Assumptions
Ergolight Conventional
Discount rate 4% 4%
Economic life (year) 20 20
Purchasing price $500,000 $100,000
Electricity costs/year $20,000 $50,000
Maintenance/year $2,000 $10,000
LCC Calculation
Costs Ergolight Conventional
Purchase $500,000 $100,000
Electricity
Maintenance
LCC
Select One (with an “x”):
Therefore, we recommend the Ergolight system.
Therefore, we recommend the Conventional system.
Check
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Solution
City administration is considering refurbishing the lighting system of its administration building.
After initial investigation, the city procument office has narrowed down the choices into the following two options:
Option 1 is a Ergolight system, which costs $500,000 to purchase and instrall.
Option 2 is a convention system, which costs $100,000 to purchase and instrall.
The system is expected to last for 20 years
The energe and maintenance cost for Option 1 is $20,000 and $2,000.
The energe and maintenance cost for Option 1 is $50,000 and $10,000.
Assume all gas costs paid at end of year.
Discount rate: 4%
Which lighting system should the city selected based on financial consideration.
Note: please use LCC analysis to facilitate the decision-making.
Parameters/Assumptions
Urgolight Conventional
Discount rate 4% 4%
Economic life (year) 20 20
Purchansing price $500,000 $100,000
Electricity costs/year $20,000 $50,000
Maintenance/year $2,000 $10,000
LCC Calculation
Costs Urgolight Conventional
Purchase $500,000 $100,000
Electricity $271,807 $679,516
Maintenance $27,181 $135,903
LCC $798,987 $915,420
Select One (with an “x”)
Therefore, we recommend the Urgolight system.
Therefore, we recommend the Conventional system.
Grade Worksheet
1.25 Total Points Available Item Grade Weight x A mark here makes the numbers in the grade calculation visible.
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B 90%
C 80%
D 70%
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