A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of the year 2070. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start at the beginning of 2030 and take five years at a cost of $20 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $3 million, increasing by 1 percent per year thereafter. At an interest rate of 7 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/the beginning of 2026. Assume there is no salvage value at the end of the year 2070.

A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of the year 2070. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start at the beginning of 2030 and take five years at a cost of $20 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $3 million, increasing by 1 percent per year thereafter. At an interest rate of 7 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/the beginning of 2026. Assume there is no salvage value at the end of the year 2070.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 3E

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