Life Cycle Costing Analysis

A Catholic school is considering refurbishing the lighting system in its administration building. After initial investigation, the school procurement office has narrowed down the options to two.

  • Option 1 is an Ergolight® system that costs $500,000 to purchase and install. • Option 2 is a conventional system that costs $100,000 to purchase and install. Both systems are expected to last for twenty years. • The energy and maintenance costs for Option 1 are $20,000 and $2,000, respectively. • The energy and maintenance costs for Option 2 are $50,000 and $10,000. Assume that all costs are to be paid at the end of the year, and the real discount rate is 4 percent. Create an Excel Spreadsheet (the spreadsheet is already completed and will be attached) in which you address the following:
  • Which lighting system should the school select based on financial considerations? Use the LCC method to address this question. • What are the major sources of financing for capital projects?

 

 

 

Sample Solution

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