Scenario

Cost Confluence, the quantity surveying arm, is currently working on a commercial building project. The client has decided (at a late stage of the design process) to investigate the potential to incorporate Light Emitting Diode (LED) lighting into the building. Your recently established subsidiary of Cost Confluence and you as Director, has been asked to assess the viability of the options:

Normal Lighting:

Type: 615 Densus G2

Light Source type FDH (T16) 2x28w

Investment cost $92,280

No of luminaries 615

No of light sources 1230

Energy consumption per year 311.4 MWh

Light source replacement $52,890 (total over 10 years)

Ballast cost replacement $89,175 (total over 10 years)

Maintenance Cost $21,525 (total over 10 years)

LED lighting:

Type: 615 Cooper Valet

Light Source type Cooper LED 27W

Investment cost $387,480

No of luminaries 615

No of light sources 615

Energy consumption per year 172.4 MWh

Light source replacement $33,825 (total over 10 years)

Ballast cost replacement $89,175 (total over 10 years)

Maintenance Cost $21,525 (total over 10 years)

Client Requirements:

1. The cost of electricity is $0.15/kWh
2. Cost of electricity increases is 11% in Y1, 9% in Y2 and 5% per annum thereafter
3. The clients opportunity cost is 10% nominal
4. Inflation rate is 3.5% pa
5. The clients investment period is 10 years

If any further information is required to undertake the analysis, state the assumptions you have made and utilise the assumptions in the relevant manner.

Task

You are to prepare a report to the client for this study. In the report you are to address the following:

1. Prepare the necessary financial analysis for your client and work out the payback period in Present Value terms for both options.

2. Prepare any other analysis you think appropriate to support your final views.

3. Prepare your recommendation/report.