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.
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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 are 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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