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A consulting engineer has been hired to advise a town how best to proceed with the construction of a 200,000-m3 water supply reservoir. Since only 120,000 m3 of storage will be required for the next 25 years, an alternative to building the full capacity now is to build the reservoir in two stages. Initially, the reservoir could be built with 120,000 m3 of capacity and then, 25 years hence, the additional 80,000 m3 of capacity could be added by increasing the height of the reservoir. If interest is computed at 4%, which construction plan is preferred?

A consulting engineer has been hired to advise a town how best to proceed with the construction of a 200,000-m3 water supply reservoir. Since only 120,000 m3 of storage will be required for the next 25 years, an alternative to building the full capacity now is to build the reservoir in two stages. Initially, the reservoir could be built with 120,000 m3 of capacity and then, 25 years hence, the additional 80,000 m3 of capacity could be added by increasing the height of the reservoir. If interest is computed at 4%, which construction plan is preferred?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A consulting engineer has been hired to advise a town how best to proceed with the
construction of a 200,000-m3 water supply reservoir. Since only 120,000 m3 of storage
will be required for the next 25 years, an alternative to building the full capacity now is
to build the reservoir in two stages. Initially, the reservoir could be built with 120,000 m3
of capacity and then, 25 years hence, the additional 80,000 m3 of capacity could be
added by increasing the height of the reservoir. If interest is computed at 4%, which
construction plan is preferred?

Detail your steps in excel.

### Construction and Maintenance Cost Analysis When considering the construction and maintenance of a facility, it is crucial to evaluate both the initial construction cost and the subsequent annual maintenance cost. Here we'll compare the costs associated with building in two stages versus building at full capacity immediately. #### Build in Two Stages 1. **First Stage:** - **Construction Cost:** $14,200,000 - **Annual Maintenance Cost:** $75,000 2. **Second Stage:** - **Construction Cost:** $12,600,000 - **Annual Maintenance Cost Addition:** $25,000 *Total Annual Maintenance Cost for Two-Stage Build:* - First Stage Maintenance: $75,000 - Add Second Stage Maintenance: +$25,000 - **Total:** $100,000 #### Build Full Capacity Now - **Construction Cost:** $22,400,000 - **Annual Maintenance Cost:** $100,000 ### Summary - **Cost of Building in Two Stages:** - **Total Construction Cost:** $14,200,000 + $12,600,000 = $26,800,000 - **Total Annual Maintenance Cost:** $100,000 - **Cost of Building Full Capacity Now:** - **Total Construction Cost:** $22,400,000 - **Total Annual Maintenance Cost:** $100,000 **Graphs or Diagrams:** There are no visual graphs or diagrams included in the text. The information is displayed in a tabular format listing construction costs and annual maintenance costs in two different scenarios: building in stages or building at full capacity from the start.
Transcribed Image Text:### Construction and Maintenance Cost Analysis When considering the construction and maintenance of a facility, it is crucial to evaluate both the initial construction cost and the subsequent annual maintenance cost. Here we'll compare the costs associated with building in two stages versus building at full capacity immediately. #### Build in Two Stages 1. **First Stage:** - **Construction Cost:** $14,200,000 - **Annual Maintenance Cost:** $75,000 2. **Second Stage:** - **Construction Cost:** $12,600,000 - **Annual Maintenance Cost Addition:** $25,000 *Total Annual Maintenance Cost for Two-Stage Build:* - First Stage Maintenance: $75,000 - Add Second Stage Maintenance: +$25,000 - **Total:** $100,000 #### Build Full Capacity Now - **Construction Cost:** $22,400,000 - **Annual Maintenance Cost:** $100,000 ### Summary - **Cost of Building in Two Stages:** - **Total Construction Cost:** $14,200,000 + $12,600,000 = $26,800,000 - **Total Annual Maintenance Cost:** $100,000 - **Cost of Building Full Capacity Now:** - **Total Construction Cost:** $22,400,000 - **Total Annual Maintenance Cost:** $100,000 **Graphs or Diagrams:** There are no visual graphs or diagrams included in the text. The information is displayed in a tabular format listing construction costs and annual maintenance costs in two different scenarios: building in stages or building at full capacity from the start.
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