see the question below 5

Part 1: Alternative Selection using NPV of Solar versus Wind Energy Gas versus Electric purchase

Problem Description

As cost of solar cell and wind turbine manufacture and installation costs continue to decrease, there is a cost point at which there is an economic justification for replacing an existing oil or natural gas based home heating system with a system that uses ‘renewable energy’.

The advantage of the existing oil or natural gas system is that there is no capital cost, though there is a substantial marginal cost of the fuel.

The advantage of either solar or wind is that the marginal costs of electric generation is near zero, however there is a substantive capital cost to purchase and install.

Problem Statement

Using the information below, and your knowledge in alternative selection (Chapter 6), select the alternative that offers the better economic justification (MARR = 9%)

Existing natural gas heating system:

Useful life = 10 years

Average annual costs for fuel = $1,500 per year

Expected average annual maintenance = $100

Expected average annual revenue from resale of electric back to grid = $0

Solar:

Useful life = 20 years

Expected installation costs = $15,000

Expected average annual Maintenance = $300

Expected average annual revenue from resale of electric back to grid = $1,000

Wind:

Useful life = 40 years

Expected installation costs = $30,000

Expected average annual maintenance = $0

Expected average annual revenue from resale of electric back to grid = $2200

To receive full credit:

a) Determine the most satisfactory alternative. b) Supply a commentary about the method used in the analysis, and why you used that method. c) Interpret the results (discussion on what the results mean).

 
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