Metropolitan Water Utilities purchases surface water from Elephant Butte Irrigation District at a cost of $100,000 per month in the months of February through September. Instead of paying monthly, the utility makes a single payment of $800,000 at the end of each calendar year for the water it used. The delayed payment essentially represents a subsidy by Elephant Butte Irrigation District to the water utility. At an interest rate of 0.25% per month, what is the amount of the subsidy?

Question

Metropolitan Water Utilities purchases surface
water from Elephant Butte Irrigation District at a
cost of $100,000 per month in the months of
February through September. Instead of paying
monthly, the utility makes a single payment of
$800,000 at the end of each calendar year for the
water it used. The delayed payment essentially represents
a subsidy by Elephant Butte Irrigation District
to the water utility. At an interest rate of 0.25%
per month, what is the amount of the subsidy?

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