A regional municipality is studying a water supply plan for its tri- city and surrounding area to the end of year 2065. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start in 2025 and take five years at a cost of $20 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $ 2 million, increasing by 1 percent per year thereafter. At an interest rate of 6 percent, what is the present worth of this project? Assume that all cash flows take place at year- end. Consider the present to be the end of 2020/ beginning of 2021. Assume that there is no salvage value at the end of year 2065.
A regional municipality is studying a water supply plan for its tri- city and surrounding area to the end of year 2065. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start in 2025 and take five years at a cost of $20 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $ 2 million, increasing by 1 percent per year thereafter. At an interest rate of 6 percent, what is the present worth of this project? Assume that all cash flows take place at year- end. Consider the present to be the end of 2020/ beginning of 2021. Assume that there is no salvage value at the end of year 2065.
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