1) Facility has aging cooling system which currently runs 80% of the time the plant is open The cost of running the cooling system is expected to increase 8% per yer since the cooling system deteriorates and running time increases . The maintenance for the old cooling system is $3000 per year which increases by $500 per year New cooling system would only run 60% of the time with a yearly maintenace of $2000 per year Assumptions Both pump uses 250 kWh, Electricity cost $0.08/kwh Plant runs 250 days per year, 24 hours per day Firms discount rate is 12% . If you analyze the two cooling systems over a 5 year period a) What is the savings the facility gets from installing the new system? b) You are planning to install a new compressor for your plant with this savings and you have two options to choose from:: Option 1 - You buy the compressor for $108,000 and incur an yearly maintenance cost of $5800 for the life of the compressor . Option 2 - You can lease the compressor for an yearly amount of $13,000 and in addition to this you incur a maintenance of $5800 for the life of the compressor.For leasing the compressor you have to make an initial deposit of $45000 which will be returned to you at the end of the lease period. Assuming the life of the compressor to be 10 years, Which option would you choose provided you cover the entire expense of the compressor with the savings you get from the new cooling system.

savings ?

which option should be selected?