The Townof Sustainability is planning to rehabilitate the fountain of youth. The fountain has a pump that needs to be replaced or refurbished.
Option A:
Replace the pump with a new pump at a cost of $14,500. In years 7 and 14 the pump needs maintenance at a cost of $2,300 each occurrence. The interest rate is 3%. The life of the new pump is 15 years and there is no salvage value at the end of 15 year life
Option B:
Maintain the existing pump based on the following schedule:
Year 1: $6,500
Year 3: $400
Year 5: $500
Year 8: $900
Year 12: $1,200
Year 15: $1,400
The interest rate is 3% and there is no salvage value at the end of 15 year life Based on life cycle cost analysis, what option do you recommend?