Applied System Analysis:

11.7. Ren O Vait The famous architect, Ren O'Vait, has bought a dilapidated Victorian mansion. In addition to various structural and cosmetic defects, the heating system needs replacement. Ms. O'Vait must choose between a conventional gas-fired furnace and a solar heating system with a small backup gas heater. Based on her prelim- inary designs, she estimates the following costs: Gas Solar/gas Initial cost Annual nonfuel Annual fuel costs $5000 100 1400 $15,000 300 200 (a) Assuming a 20-year design life for both systems, and a discount rate of 8%, which system is cheaper? (b) which system would be preferred if the discount rate were 5%? 10%? (c) which system will be favored if, with a discount rate of 8%, the time horizon is reduced to 15 years? Extended to 25 years