A city is planning a new pipeline to supply water from distant mountains. The planning horizon chosen is 50 years, and the city uses an interest rate of 7%. For $250 million, the city can build a pipeline now that would supply its needs for 50 years, or it could build the project in two stages: $150 million now and $200 million in Year 25. Annual operation and maintenance for the first stage of the two-stage project are $3.0 million through Year 25 followed by $6.0 million for the combined first and second stage project after Year 25 and through Year 50. a) Form the cash flow table for the two alternatives and the incremental investment, showing the correct signs for all entries. b) Using present worth analysis, determine the best project. c) Using annual cash flow analysis, determine the best project.

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A: As per our protocol we provide solution to one question only or to the first three sub-parts only…

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A: Time period required for collecting the amount of investment is known as payback period.

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A:

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Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.