The Town of Sustainability is planning to rehabilitate the fountain of youth. The fountain has a pump that can be replaced or refurbished.

Option A:

Replace the pump with a new pump at a cost of $12,000.

In years 7 and 14 the pump needs maintenance at a cost of $2,300 each occurrence. The interest rate is 5%. The life of the new pump is 15 years and there is no salvage value at the end of the 15-year life.

Based on the life cycle cost analysis what option do you recommend?

Option B:

Maintain the existing pump based on the following schedule:

Today, $6,500

Year 3, $400

Year 5, $1,500

Year 8, $900

Year 12, $1,200

Year 14, $1,700

The interest rate is 5% and there is no salvage value at the end of the 15-year life.

Based on the life cycle cost analysis what option do you recommend?