Operations Management - Life cycle cost

timer Asked: Nov 23rd, 2016

Question description

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

Option A: Replace the pump with a new pump at a cost of $13,500. The new pump will need maintenance at a cost of $2,300 at the end of year 7 and $2,300 at the end of year 14. The interest rate is 3%. There is no salvage value at the end of the 15 year life. Option B: Maintain the existing pump based on the following schedule: 

End of Year 1: $6,500 

End of Year 4: $1,500 

End of Year 8: $1,900 End of Year 12: $2,200 

End of Year 15: $2,900 

The interest rate is 3%. 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?

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