(i) Purchasing diesel set: 
Capital cost = Rs. 400000 
Annual interest and depreciation = Rs. 40000 
Extra power to be generated = 500 kW 
Annual charge due to extra kW max demand = Rs. 37500 
Annual charge due to extra kWh consumption = Rs. 275000 
Total Annual cost = Rs. 352500 

(ii) Purchasing from grid supply: 
Annual charge due to extra kW max demand = Rs. 60000 
Annual charge due to extra kWh consumption = Rs. 165000 
Total Annual cost = Rs. 225000 

Alternative (ii) is cheaper by Rs. 127500

