Your company is environmentally conscious and is looking at two heating options for a new research building. What you know about each option is below, and your company will use an annual interest rate of 8% for this decision: Gas Heating Option: The initial equipment and installment of the natural gas system would cost $225,000 right now. The maintenance costs of the equipment are expected to be $2,000 per year, starting next year, for each of the next 20 years. The energy cost is expected to be $5,000,starting next year, and is expected to rise by 5% per year for each of the next 20 years due to the price of natural gas increasing. Geothermal Heating Option: Because of green energy incentives provided by the government, the geothermal equipment and installation is expected to cost only $200,000 right now, which is cheaper than the gas lines. There would be no energy cost with geothermal, but because this is a relatively newer technology, the maintenance costs are expected to be $10,000 per year, starting next year, for each of the next 20 years. Which is the lower cost option for the company?
Your company is environmentally conscious and is looking at two heating options for a new research building. What you know about each option is below, and your company will use an annual interest rate of 8% for this decision: Gas Heating Option: The initial equipment and installment of the natural gas system would cost $225,000 right now. The maintenance costs of the equipment are expected to be $2,000 per year, starting next year, for each of the next 20 years. The energy cost is expected to be $5,000,starting next year, and is expected to rise by 5% per year for each of the next 20 years due to the price of natural gas increasing. Geothermal Heating Option: Because of green energy incentives provided by the government, the geothermal equipment and installation is expected to cost only $200,000 right now, which is cheaper than the gas lines. There would be no energy cost with geothermal, but because this is a relatively newer technology, the maintenance costs are expected to be $10,000 per year, starting next year, for each of the next 20 years. Which is the lower cost option for the company?
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