Question

Two alternate plans are available for increasing the capacity of existing water transmission lines between an unlimited source and a reservoir. The unlimited source is at a higher elevation then the reservoir. Plan A calls for the construction of a parallel pipeline and flow by gravity. Plan B specifies construction of a booster pumping station. Estimated cost for the two plans are as follows: Hint: Use Present Worth- (do not guess show all your work) i=10%
Plan A : Cost $700,000, Life 40 Years, Annual Operation and Repair $1,000/Year
Plan B: Cost $200,000, Life 40 Years Structure and 20 years equipment, Equipment replacement at the end of 20 years $75,000, Annual Operation and Repairs 52,000/year
a. Plan A $709,779.00
b. Plan A $740,000
c. Plan B $710,165.50
d. Plan B $326,000

Answer 1

Answer:

plan a

Explanation:

present worth of plan A= 700000+1000(p/a,10%,40)

= 700000+1000*9.779

= 700000+9779

= 709779 dollars

present worth of plan b = 200000+75000(p/f,10%,20)+52000/year(p/a,10%,40)

= 200000+75000*0.1486+52000*9.779

= 719653 dollars.

we compare the  pw of both a and b, from the solutions above, the present worth of plan a is smaller than that of plan b, so the best option is plan a, $709,779.00