1. As part of a new residential development, the City of Prescott is considering a new pump system to provide water. Before making a final decision on a particular pump system, the City Engineer needs provide management with an annual cost for budgeting purposes over the next four-years. The pump costs have already been accepted. Using the data in the following table, what is the equivalent annual maintenance cost for the system, assuming 4% interest is available to the City for bonding purposes? [Hint - consult slides 33 and 34 from 10/26/2021 lecture.] Year Maintenance Cost 1 $200 2 $400 3 $600 4 $800 2. For budgeting purposes, the City Manager wants to know the present worth of the annual maintenance costs in the previous problem (at year 0). Using the same 4% interest rate, what is the present worth? 3. Not satisfied with the information developed in the previous two problems, the City Manager wants the City Engineer to negotiate another arrangement for satisfying the maintenance costs for the new pump system. The vendor proposes an alternate payment program for the maintenance, where the Town pays $400 at the end of the first year and increases by 15% each year. Assuming the same 4% interest rate, would this payment proposal be more or less beneficial for Prescott? [Hint - consult slide 42 from the 10/26/2021 lecture.]
1. As part of a new residential development, the City of Prescott is considering a new pump system to provide water. Before making a final decision on a particular pump system, the City Engineer needs provide management with an annual cost for budgeting purposes over the next four-years. The pump costs have already been accepted. Using the data in the following table, what is the equivalent annual maintenance cost for the system, assuming 4% interest is available to the City for bonding purposes? [Hint - consult slides 33 and 34 from 10/26/2021 lecture.] Year Maintenance Cost 1 $200 2 $400 3 $600 4 $800 2. For budgeting purposes, the City Manager wants to know the present worth of the annual maintenance costs in the previous problem (at year 0). Using the same 4% interest rate, what is the present worth? 3. Not satisfied with the information developed in the previous two problems, the City Manager wants the City Engineer to negotiate another arrangement for satisfying the maintenance costs for the new pump system. The vendor proposes an alternate payment program for the maintenance, where the Town pays $400 at the end of the first year and increases by 15% each year. Assuming the same 4% interest rate, would this payment proposal be more or less beneficial for Prescott? [Hint - consult slide 42 from the 10/26/2021 lecture.]
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![1. As part of a new residential development, the City of Prescott is considering a new pump system to provide water.
Before making a final decision on a particular pump system, the City Engineer needs provide management with an
annual cost for budgeting purposes over the next four-years. The pump costs have already been accepted. Using
the data in the following table, what is the equivalent annual maintenance cost for the system, assuming 4%
interest is available to the City for bonding purposes? [Hint - consult slides 33 and 34 from 10/26/2021 lecture.]
Year
Maintenance Cost
1
$200
2
$400
$600
4
$800
2. For budgeting purposes, the City Manager wants to know the present worth of the annual maintenance costs in the
previous problem (at year 0). Using the same 4% interest rate, what is the present worth?
3. Not satisfied with the information developed in the previous two problems, the City Manager wants the City
Engineer to negotiate another arrangement for satisfying the maintenance costs for the new pump system. The
vendor proposes an alternate payment program for the maintenance, where the Town pays $400 at the end of the
first year and increases by 15% each year. Assuming the same 4% interest rate, would this payment proposal be
more or less beneficial for Prescott? [Hint - consult slide 42 from the 10/26/2021 lecture.]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F61672d82-08cf-4493-a3c5-bb0d49ba2ec1%2F5be8b6ea-511c-448a-ba2f-8ce996139014%2F3w9y77q_processed.png&w=3840&q=75)
Transcribed Image Text:1. As part of a new residential development, the City of Prescott is considering a new pump system to provide water.
Before making a final decision on a particular pump system, the City Engineer needs provide management with an
annual cost for budgeting purposes over the next four-years. The pump costs have already been accepted. Using
the data in the following table, what is the equivalent annual maintenance cost for the system, assuming 4%
interest is available to the City for bonding purposes? [Hint - consult slides 33 and 34 from 10/26/2021 lecture.]
Year
Maintenance Cost
1
$200
2
$400
$600
4
$800
2. For budgeting purposes, the City Manager wants to know the present worth of the annual maintenance costs in the
previous problem (at year 0). Using the same 4% interest rate, what is the present worth?
3. Not satisfied with the information developed in the previous two problems, the City Manager wants the City
Engineer to negotiate another arrangement for satisfying the maintenance costs for the new pump system. The
vendor proposes an alternate payment program for the maintenance, where the Town pays $400 at the end of the
first year and increases by 15% each year. Assuming the same 4% interest rate, would this payment proposal be
more or less beneficial for Prescott? [Hint - consult slide 42 from the 10/26/2021 lecture.]
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