The Cebu City plans to increase the capacity of her existing water transmission lines. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P197,342,811 and the life is 40 years, with an annual operating cost of P8,450,154 for the 1st 20 years and P13,297,046 for the next 20 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 40 years. The pumping equipment cost an additional amount of P25M, it has a life of 20 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 21% cpd. annually, what is the PV of Plan A?
The Cebu City plans to increase the capacity of her existing water transmission lines. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P197,342,811 and the life is 40 years, with an annual operating cost of P8,450,154 for the 1st 20 years and P13,297,046 for the next 20 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 40 years. The pumping equipment cost an additional amount of P25M, it has a life of 20 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 21% cpd. annually, what is the PV of Plan A?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 12P
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The Cebu City plans to increase the capacity of her existing water transmission lines. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P197,342,811 and the life is 40 years, with an annual operating cost of P8,450,154 for the 1st 20 years and P13,297,046 for the next 20 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 40 years. The pumping equipment cost an additional amount of P25M, it has a life of 20 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 21% cpd. annually, what is the PV of Plan A?
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