would love a hand to work out the best formula to do this one :)

You own a rental building and are interested in replacing the heating system. You are faced with the following alternatives, each of which is equally effective in heating: The opportunity cost is 10%

a) A solar heating system, which will cost $12,000 to install and $500 a year to run and will last forever.

b) A gas heating system, which will cost $5,000 to install and $1,000 a year to run and will last 20 years.

c) An oil heating system, which will cost $3,500 to install and $1,200 a year to run and will last 15 years.

Question

would love a hand to work out the best formula to do this one :)

You own a rental building and are interested in replacing the heating system. You are faced with the following alternatives, each of which is equally effective in heating: The opportunity cost is 10%

a) A solar heating system, which will cost $12,000 to install and $500 a year to run and will last forever.

b) A gas heating system, which will cost $5,000 to install and $1,000 a year to run and will last 20 years.

c) An oil heating system, which will cost $3,500 to install and $1,200 a year to run and will last 15 years.

anonymous · Answer

assuming the building has to be heated indefinitely...
cost per year = (installation cost )/(time the system lasts) + (running cost)

anonymous · Answer

do you see why?

anonymous · Answer

Nah way confused I think I have to determine which of the 3 options is most efficient

anonymous · Answer

ie unsure where the 10% opportunity cost comes from?

anonymous · Answer

I'm not sure either, all definitions of that term I'm not familiar with don't really fit in this situation

anonymous · Answer

All good though mate ill go through the slides again :)