1. Based on an NPV analysis, which solution (A or B) is better? Please be sure to draw and label a cash flow diagram.

2. Determine the equivalent annual cost for each alternative.

Mkt Discount Rate = 8%

Total Cost: Year 0: Year 1-11 Year 12: Year 13: Year 14: Year 15: Kamu per year): SOLUTION A (RENOVATION) Renovation Costs (Y0) Retrofit Replacement $4,700,000 $4,700,000 $600,000 -S600,000 Operations & Maintenance $4,500,000 Electricity Usage $1,800,000 0.5 with 1% cscalation per year 0.12 with 3% escalation per year 0.5 with 1% escalation per year 0.12 with 3% escalation per year 0.5 with 1% escalation per year 0.12 with 3% escalation per year 0.5 with 1% escalation per ycar 0.12 with 3% escalation per year 0.5 with 1% escalation per year 0.12 with 3% escalation per year $800,000 Salvage Value $800,000 SOLUTION B (NEW CONSTURCTION) Construction Costs (YO) $6,500,000 -$6,500,000 Operations & Maintenance $3,000,000 Electricity Usage $1,350,000 0.2 with 1% cscalation per year 0.09 with 3% escalation per year 0.2 with 1% cscalation per year 0.09 with 3% escalation per year 0.2 with 1% escalation per year 0.09 with 3% escalation per year 0.2 with 1% escalation per 0.09 with 3% escalation per year 0.2 with 1% escalation per ycar 0.09 with 3% escalation per year $2,000,000 Salvage Value $2,000,000 Total Cost: Year 0: Year 1-11 Year 12: Year 13: Year 14: Year 15: Kamu per year): SOLUTION A (RENOVATION) Renovation Costs (Y0) Retrofit Replacement $4,700,000 $4,700,000 $600,000 -S600,000 Operations & Maintenance $4,500,000 Electricity Usage $1,800,000 0.5 with 1% cscalation per year 0.12 with 3% escalation per year 0.5 with 1% escalation per year 0.12 with 3% escalation per year 0.5 with 1% escalation per year 0.12 with 3% escalation per year 0.5 with 1% escalation per ycar 0.12 with 3% escalation per year 0.5 with 1% escalation per year 0.12 with 3% escalation per year $800,000 Salvage Value $800,000 SOLUTION B (NEW CONSTURCTION) Construction Costs (YO) $6,500,000 -$6,500,000 Operations & Maintenance $3,000,000 Electricity Usage $1,350,000 0.2 with 1% cscalation per year 0.09 with 3% escalation per year 0.2 with 1% cscalation per year 0.09 with 3% escalation per year 0.2 with 1% escalation per year 0.09 with 3% escalation per year 0.2 with 1% escalation per 0.09 with 3% escalation per year 0.2 with 1% escalation per ycar 0.09 with 3% escalation per year $2,000,000 Salvage Value $2,000,000