Life Cycle Costing----
Your favorite uncle Vito Corleone considers updating the heating system in his small getaway house. After an initial investigation, he is faced with two options:
Option 1 is to get a baseboard heating system and window air conditioners. The purchase and installation costs are $1,500. The residual value equals to 10% of the initial cost. Annual electricity consumption is 15,000 kWh. Annual maintenance costs equal to $50.
Option 2 is a heat pump that costs $2,200 to purchase and install. The residual value equals to 10% of the initial cost. The annual maintenance cost is $100. Annual electricity consumption is 10,250 kWh. Both systems are expected to last for 15 years. Assume that the discount rate is 2.4% and all future costs are paid at the end of the year. Assume the current price of electricity to be $0.10 per kWh. Which heating system should Mr. Corleone select based on LCC considerations?