Which lighting system should the school

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A Catholic school is considering refurbishing the lighting system in its administration building. After initial investigation, the school procurement office has narrowed down the options to two: Option 1 is an Ergolight system that costs $500,000 to purchase and install; Option 2 is a conventional system that costs $100,000 to purchase and install. Both systems are expected to last for twenty years. The energy and maintenance costs for Option 1 are $20,000 and $2,000, respectively. The energy and maintenance costs for Option 2 are $50,000 and $10,000.

Question 1: Assume that all costs are to be paid at the end of the year and the real discount rate is 4 percent. Which lighting system should the school select based on financial considerations? Use the LCC method to answer the question. Show/explain your key calculations.

Reference no: EM132498380

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