The town of Dry Gulch needs more water from Pine Creek. The town engineer has selected two plans for comparison: a gravity plan (divert water at a point 10 miles up Pine Creek and pipe it by gravity to the town) and a pumping plan (divert water at a point closer to town). The pumping plant would be built in two stages, with half-capacity installed initially and the other half installed 10 years later. Use an annual cash flow analysis to find which plan is more economical. The analysis will assume a 40-year life, 10% interest, and no salvage value Gravity Pumping Initial investment $ 2,800,000 $ 1,400,000 Investment in 10th year None $ 200,000 Operation and maintenance $ 10,000/yr $ 25,000/yr Power cost Average first 10 years None $ 50,000/yr Average first 30 years None $ 100,000/yr
The town of Dry Gulch needs more water from Pine Creek. The town engineer has selected two plans for comparison: a gravity plan (divert water at a point 10 miles up Pine Creek and pipe it by gravity to the town) and a pumping plan (divert water at a point closer to town). The pumping plant would be built in two stages, with half-capacity installed initially and the other half installed 10 years later. Use an annual cash flow analysis to find which plan is more economical. The analysis will assume a 40-year life, 10% interest, and no salvage value Gravity Pumping Initial investment $ 2,800,000 $ 1,400,000 Investment in 10th year None $ 200,000 Operation and maintenance $ 10,000/yr $ 25,000/yr Power cost Average first 10 years None $ 50,000/yr Average first 30 years None $ 100,000/yr
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1nM
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The town of Dry Gulch needs more water from Pine Creek. The town
engineer has selected two plans for comparison: a gravity plan (divert
water at a point 10 miles up Pine Creek and pipe it by gravity to the
town) and a pumping plan (divert water at a point closer to town).
The pumping plant would be built in two stages, with half-capacity
installed initially and the other half installed 10 years later.
| Use an annual cash flow analysis to find which plan is more | ||
| economical. The analysis will assume a 40-year life, 10% interest, | ||
| and no salvage value | ||
| Gravity | Pumping | |
| Initial investment | $ 2,800,000 | $ 1,400,000 |
| Investment in 10th year | None | $ 200,000 |
| Operation and maintenance | $ 10,000/yr | $ 25,000/yr |
| Power cost | ||
| Average first 10 years | None | $ 50,000/yr |
| Average first 30 years | None | $ 100,000/yr |
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