Currently, two options are available for modernization of a pumping station in a

Question

Currently, two options are available for modernization of a pumping station in a water treatment facility. Option 1 is to install a pumping system which is more durable at a cost of $20,000. With this option, the system will require to be replaced every 15 years. The maintenance cost for this system runs at $4,000 every five years. Option 2 is to install a cheaper pumping system. It costs $12,000. However, the system must be replaced every 6 years. The maintenance cost for this system is $1,600 every 2 years. Compute the present worth capitalized cost for each option and decide which one would be to our advantage. The interest rate is at 7% per year.

Explanation / Answer

Answer:

Option 1:

Present Worth Capitalized cost=$20000*0.3624460+4000*0.713

=7248.92+2852=10100.92

Option 2:

Present Worth Capitalized cost=$12000*0.6663+1600*0.8734

=7995.6+1397.44=9393.04

Option 2 is choosed because it has lower cost as compare to options 1.

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