The costs of two small heat pump units System A and System B are $$1000$ and $$1200.$ The corresponding annual operating costs are $$110$ and $$100$ respectively. The interest rate is $8\%$ and the amortization is selected as $20$ years.

$($a$)$ Perform a simple economic analysis and compare the two systems based on present worth basis $($hint: initial cost $+$ inflated operating cost$)$

$($b$)$ Recommend the more viable option based on the analysis above. State two other considerations other than the outcome of the life cycle cost analysis, which should be accounted for when making the final decision.

$($c$)$ Given that an inflation rate of $5\%$ is to be considered, determine the effective interest rate or real rate and comment on the impact on the operating costs and previous recommendation.Question $3(10\%)$

The costs of two small heat pump units System A and System B are $$1000$ and $$1200.$ The corresponding

annual operating costs are $$110$ and $$100$ respectively. The interest rate is $8\%$ and the amortization is

selected as $20$ years.

$($a$)$ Perform a simple economic analysis and compare the two systems based on present worth basis

$($hint: initial cost $+$ inflated operating cost$)$

$($b$)$ Recommend the more viable option based on the analysis above. State two other considerations

other than the outcome of the life cycle cost analysis, which should be accounted for when making

the final decision.

$($c$)$ Given that an inflation rate of $5\%$ is to be considered, determine the effective interest rate or real

rate and comment on the impact on the operating costs and previous recommendation.