A client is considering replacing his heating system in an office building. Two systems are being considered. System A has higher initial costs but lower recurring costs. System B has lower initial costs but higher recurring costs. The client expects that this office building would be re-constructed 18 years later. The discount rate to be used is 10%.

Please conduct a cost-in-use study of the above two systems covering both initial and recurring costs until 18 years after replacing and advise which of the above methods is the more economical option for the client.

System A System B

1. Initial Costs = $ 1. Initial Costs = $
2. Recurring costs: 2. Recurring Costs:

Minor Repairs = $ Minor Repairs = $

Fuel costs= $ Fuel Costs= $

Major Repairs= $ Major Repars= $

TOTAL Costs= $ Total Costs = $

(5 marks) (5 Marks)

System A System B $250,000 Initial costs $500,000 Recurring costs Minor repairs 5,000 per annum 20,000 per annum 35,000 every 10 years 8,000 per annum 25,000 per annum Fuel Major repairs 30,000 every 5 years