Assignment 12.1 page 263 Conducting Life-Cycle Costing

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. Assume that all costs are to be paid at the end of the year and the real dis- count rate is 4 percent. Which lighting system should the school select based on financial considerations? Use the LCC method to address this question.