Reference no: EM133083858

A forestry company is looking for sustainable power generation options for a remote location in Northern Ontario. The default (readily available) option is to connect the site to the regular hydroelectric grid and pay an estimated $11,000 in annual energy cost. The company identified two alternative energy sources: solar and wind. The solar energy alternative has a useful life of 6 years, will require procurement and installation cost of $22,000 and annual maintenance cost of $1,500. The solar system will have a salvage value after 6 years of $1,000. The wind system has a useful life of 8 years, with an initial cost of $15,500 and annual operation and maintenance cost of $1,600, and a decommissioning cost (negative salvage value) after 8 years of $2,000. Both systems will generate enough power such that the electric system will be self-sufficient and run entirely without the need of connecting to regular hydroelectric grid.

For economic analysis, the MARR is set to be 6%, and alternatives are replicable in the future with exact cost/salvage estimates; including initial and running costs. The forestry company intends to reforest and harvest the land in a sustainable way and therefore has no end date for this project's life. Using an appropriate method of analysis, choose the better alternative. Show calculation steps leading to this choice and provide explanations whenever possible.