A utility company is considering the following plans to provide a certain service required by resent demand and the respective growth of demand for the coming 18 years. Plan R requires an immediate investment of 500,000 in property that has an estimated life of 18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be 50,000. Annual property taxes will be 2% of the first cost. Plan S requires an immediate investment of 300,000 in property that has an estimated life of 18 years with 20% terminal salvage value. Annual disbursements for its operation and maintenance during the first 6 years will be 40,000. After 6 years, an additional investment of 400,000 will be required having an estimated life of 12 years with 40% terminal salvage value. After this additional property is installed, annual disbursements for operation and maintenance of the combined property will be 60,000. Annual property taxes will be 2% of the first cost of property in service at any time. Money is worth 12%. What would you recommend? Use (a) Present worth method (b) Equivalent uniform annual cost method
A utility company is considering the following plans to provide a certain service required by resent
demand and the respective growth of demand for the coming 18 years.
Plan R requires an immediate investment of 500,000 in property that has an estimated life of
18 years and with 20% terminal salvage value. Annual disbursements for operation and
maintenance will be 50,000. Annual property taxes will be 2% of the first cost.
Plan S requires an immediate investment of 300,000 in property that has an estimated life of
18 years with 20% terminal salvage value. Annual disbursements for its operation and
maintenance during the first 6 years will be 40,000. After 6 years, an additional investment of
400,000 will be required having an estimated life of 12 years with 40% terminal salvage value.
After this additional property is installed, annual disbursements for operation and maintenance of
the combined property will be 60,000. Annual property taxes will be 2% of the first cost of property
in service at any time. Money is worth 12%. What would you recommend? Use (a) Present worth method (b) Equivalent uniform annual cost method
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