A village on Long Island is planning a new water supply scheme, and is considering two options:

a)A 1 5-year system with an initial cost of $400,000. The system will have to be supplemented with a similar system in year 15. Supporting equipment will be replaced every 30 years for a total cost of $75,000. For the first 15 years, operating costs will be $31,000 per year, then will increase to $62,000 per year. They will also be expected to increase by $1000 per year after year 21.

b)A one-time system with an initial cost of $550,000. The system will be operated at half-capacity in the first 15 years, incurring operating costs of $35,000 per year. These will increase to $55,000 per year in year 15, when the system will move to full-capacity operation. Supplementary equipment will have to be replaced every 30 years at a cost of $150,000.

Do the following:

a)Based on a rate of return for the village of 10%, make a recommendation to the village on which system to use based on a life-cycle analysis. (2 pts.)

b)Determine, by researching, whether initial costs or operating costs are generally more crucial to economic decision-making based on life-cycle analysis. (Please use at least 2 full-text references to discuss.) (4 pts.)