A city wants to set aside enough money to build, operate, and renovate a sewage treatment plant in perpetuity. An engineering company estimates that the plant will cost an immediate $20 million to build and will require $5 million every 20 years to replace major equipment and $10 million every 50 years to pay for the major structural renovation. It is estimated that operation and maintenance costs will be $1.5 million every year. What amount will the city need to set aside? Interest earned on the annuity is 7%.
A city wants to set aside enough money to build, operate, and renovate a sewage treatment plant in perpetuity. An engineering company estimates that the plant will cost an immediate $20 million to build and will require $5 million every 20 years to replace major equipment and $10 million every 50 years to pay for the major structural renovation. It is estimated that operation and maintenance costs will be $1.5 million every year. What amount will the city need to set aside? Interest earned on the annuity is 7%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A city wants to set aside enough money to build, operate, and renovate a sewage treatment
plant in perpetuity. An engineering company estimates that the plant will cost an immediate
$20 million to build and will require $5 million every 20 years to replace major equipment
and $10 million every 50 years to pay for the major structural renovation. It is estimated
that operation and maintenance costs will be $1.5 million every year. What amount will
the city need to set aside? Interest earned on the annuity is 7%.
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