Question:
An electric utility is considering upgrading its facilities to save consumer costs. Currently these consumer costs total $350,000 per year. Transformer upgrade Y would have an initial cost of $750,000, would last for 20 years with no salvage value, would save the utility $20,000 per year in operating costs compared to the present situation and would result in consumer costs of 250,000 per year compared to the current $350,000 per year.
Transformer Z would have an initial cost of $1,200,000, would last for 30 years with a salvage value of $250,000, would increase the operating costs by $10,000 per year and would decrease consumer costs to $160,000 per year.
Which Transformer would you choose if i=8%? Use B/C analysis using all three equations.