The town of Melville needs to obtain an additional supply of water from a nearby river. They offered two options: diverting water at a point 8 miles upstream and allowing gravity to mow own (the "gravity" plan), or diverting water at a point much closer to the town and using pu water to the town (the "pumping" plan). The pumping plan would be built in two stages, wit apacity installed initially and the other half installed ten years later. For both options, the t 40-year life, 10% interest, and no salvage value. The projected costs are in the table below nitial Cost dditional investment at the end of me 10th year nnual Operation and Maintenance, cluding Power anual Power Cost Gravity $2,800,000 None $10,000 None Pumping $1,400,000 $200,000 $25,000 $75,000
The town of Melville needs to obtain an additional supply of water from a nearby river. They offered two options: diverting water at a point 8 miles upstream and allowing gravity to mow own (the "gravity" plan), or diverting water at a point much closer to the town and using pu water to the town (the "pumping" plan). The pumping plan would be built in two stages, wit apacity installed initially and the other half installed ten years later. For both options, the t 40-year life, 10% interest, and no salvage value. The projected costs are in the table below nitial Cost dditional investment at the end of me 10th year nnual Operation and Maintenance, cluding Power anual Power Cost Gravity $2,800,000 None $10,000 None Pumping $1,400,000 $200,000 $25,000 $75,000
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter1: Introductin To Taxation
Section: Chapter Questions
Problem 6P
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Transcribed Image Text:The town of Melville needs to obtain an additional supply of water from a nearby river. They have been
offered two options: diverting water at a point 8 miles upstream and allowing gravity to move the water to the
town (the "gravity" plan), or diverting water at a point much closer to the town and using pumps to move the
water to the town (the "pumping" plan). The pumping plan would be built in two stages, with half of its
capacity installed initially and the other half installed ten years later. For both options, the town wants to use
a 40-year life, 10% interest, and no salvage value. The projected costs are in the table below:
Initial Cost
Additional investment at the end of
the 10th year
Annual Operation and Maintenance,
excluding Power
Annual Power Cost
Gravity
$2,800,000
None
$10,000
$25,000
$75,000
Use an Annual Worth analysis to determine the most economical plan for the town.
Pumping
None
$1,400,000
$200,000
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