SOLVE USING Annual Equivalent Cost analysis
The senior Engineer at Engineering Services Incorporated is evaluating alternatives to supply electricity to one of the company’s new project. He is willing to pay $3 million for electricity purchased from the local utility at the end of the first year and estimates that this cost will increase thereafter at $300,000 per year. He desires to know if he should build a 4000 - kilowatt power plant. His operating costs (other than fuel) are estimated to be $130,000 per year. He is considering two alternative fuels Wood: Installed cost of the power plant is $1200/kW. Fuel consumption is 30,000 tons per year. Fuel cost for the first year is $20/ton and is estimated to increase at a rate of $2/ton for each year after the first. No salvage value b.Oil: Installed cost is $1000/kW. Fuel consumption is 46,000 barrels per year. Fuel cost is $34 per barrel for the first year and is estimated to increase at $1/barrel per year for each year after the first. No salvage value.