A city government has identified two options for expanding its solar generation capacity. The time-period for comparison is 8 years, with interest fixed at 12% per year.

Option A is to build a solar array at 50% capacity now, at a cost of $1 million, with an operating cost of $100,000 at the end of each year for 4 years. At the end of year 4, the array will be expanded to 100% capacity, at a cost of $850,000. After the expansion, operating costs will rise to $150,000 per year.

Option B is to build a full-scale solar array now at a cost of $1.5 million, with annual end-of-year operating costs of $175,000.

Which option should the city government choose and why? Show your work!

Answer rating: 100% (QA)

To determine which option the city government should choose we need to compare the costs and benefit... View the full answer