A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2070. To satisfy the water demand, one suggestion is to construct a pipeline from a majorlake some distance away. Construction would start at the beginning of 2030 and take five years at a cost of $15 million per year. The cost of maintenance and repairs starts after completion ofconstruction and for the first year is $3 million, increasing by 2 percent per year thereafter. At an interest rate of 9 percent, what is the present worth of this project? Assume all cash flows take placeat year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2070.Click the icon to view the table of compound interest factors for discrete compounding periods when i = 9%.The present worth of this project is $ million.(Round to two decimal places as needed.)

Present worth is equivalent value today all cost and benefits that will incurr in the future based…

Answered: regional municipality is studying a…

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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The Egyptian government is considering three projects to overcome the drought due to (sad EINahda) project. Project A is a dam. The dam will have irrigation and recreation benefits in addition to the water control benefits. Projects B and C consist of permanent dikes along the Nile River near Nagaa Hammadi. Data for these projects are shown in the following table. Using a MARR of 0.11 and considering the project life to be 30 years, use incremental annual worth benefit-cost analysis to choose the best project. Project A Project BProject C First Cost (millions of $) Annual Benefits (millions of $) 45.8 30.8 22 4.6 3.4 Annual Op, and Maint. Costs (millions of $) 0.4 0.2 0.2 Benefit to Cost Ratio AW(C) = Benefit to Cost Ratio AW(B) = Benefit to Cost Ratio AW(A) = Benefit to Cost Ratio AW(B-C) = Benefit to Cost Ratio AW(A-B) = Select 1 for Project A 2 for Project B 3 for Project C
a) The Coca-Cola Company are looking to go for a project that will require an initial investment of $ 500,000 and an annual expenditure of $ 50,000 from year one till the 5th year and annual expenditure of $ 70,000 from the 6th year till the end of this project. The project will provide revenue of $ 100,000 annually but will decrease by $ 1000 each year till the end. The project has a life time of 10 years. Find out the PEC (present equivalent cost) if the nominal interest rate is 15%. b) If you borrowed $10,000 with a promise to make 10 equal payments starting 1 year from now, calculate the amount of payments if the interest rate were 8% per year compounded weekly?
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4.87 million to setup and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $12 million during this year and depreciation expense will be another $3 million. THSI will require no working capital for this investment. THSI's marginal tax rate is 35%. Assume that THSI's cost of capital is 14.6% p.a. Compute the NPV of the temporary housing facility to the nearest dollar
A developer plans to start construction of a building in one year if at that point rent levels make construction feasible. At that time the building will cost $1,340,000 to construct. During the first year after construction would take place, there is a 60 percent chance that NOI will be $175,500 and a 40 percent chance that the NOI will be $88,600. In either case, NOI would be expected to increase at 2 percent per year after the first year. Required: How much should the developer be willing to pay for the land if he wants a 12 percent rate of return? (Round your answer to the nearest whole dollar amount.) Amount payable by developer $ 1,334,444
Fieldspring's city manager of public works has been reviewing flood data for his city and has determined a certain pattern to the associated costs. He wishes to start a perpetual fund for floods. The fund will make available $150,000 each year plus $450,000 every third year. Assume that he wants the first $150,000 made available now and can get an interest rate of 6.5%. (a) What is the EUAC of this proposed fund? Suggestion: Consider the CFD shown on the right. Find the EUAC using the A's and a A/F of the $450K of the 3rd year. $450K $150K same pattern 0 1 2 3 4 5 6... 0
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would require use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $120,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.32 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $440,000. Finally, the project requires an immediate investment in working capital of $370,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Working capital will be run down to zero in year 8 when the project shuts down. Year 1 sales of hog feed are expected to be $4.60 million, and thereafter, sales are forecasted…
An electric utility is considering a photovoltaic (PV) solar panel system to provide power to water conditioning pumps within the power plant. The project will be done in two phases. Phase 1 has an initial cost of $3 million. Phase 2 will cost $2.2 million at the beginning of year 3. The system will be put into service at the beginning of year 4. The annual savings using the PV panels is estimated to be $900,000, increasing by $120,000 per year through year 10. The utility’s Minimum Attractive Rate of Return (MARR) is 10%. 1. Determine if the cost of the PV system is justified. (Hint: Consider comparing the present worth of the costs and present worth of the savings.) 2. What is the actual rate of return for this project?
Citywide Courier Services projects that demand for its services will rise for a period of three years before subsiding. It can lease additional communication for $1,000 at the beginning of every quarter for three years. Alternatively, it can purchase the equipment for $13,995 at 7.5% compounded quarterly. The salvage value of the equipment after three years is expected to be $4,000. Which option would you recommend? How much better is that option in today's dollars?
Happy Trails Senior Living Community is considering investing in solar panels to save on utility costs. The initial cost of the panels, including installation, is $250,000. The expected reduction in utility costs are noted below. Utility costs savings for the next five years are: Year 1: $65,000 Year 2: $68,250 Year 3: $71,663 Year 4: $75,246 Year 5: $79,008 The current interest rate used to evaluate investment decisions is 6%. The inflation rate is expected to remain constant at 3% for the entire period. Instructions (a) Compute the present value of the expected cash flows (savings). (b) Should Happy Trails move forward with the investment?
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $5 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $12 million during this year and the capital cost allowance will be another $3 million. THSI will require no working capital for this investment. THSI's marginal tax rate is 35%. Assume that THSI's cost of capital for this project is 15%. The net present value (NPV) of this temporary housing project is closest to: $435,000 -$650,000 $1,960,000 -$435,000 $1,250,000
A municipality needs to procure funds for a roadway project that has an initial cost of $30M and operating and maintenance costs of $1M that will increase 2% a year with a 20 yr lifetime. The county is going to issue 20-yr bonds with $10,000 face values and a coupon rate of 4% (paid annually). The market interest rate is estimated to be 5% over the project’s time horizon. How many bonds must they issue if they want to cover their entire (present worth) project costs? How much interest will the municipality pay each year for these bonds? Round your answer to the nearest dollar and enter it without commas. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
A government-funded wind-based electric power generation company in the southern part of the country has developed the following estimates (in $1000) for a new turbine farm. The MARR is 10% per year and the project life is 25 years. Benefits: $45,000 in year 0; $26,500 in year 5Government savings: $2,000 in years 1 through 20Cost: $46,000 in year 0Disbenefits: $3000 in years 1 through 10 NOTE: This is a multi-part question. Once an answer is submitted, you will be unable to return to this part.Calculate the conventional B/C ratio. The conventional B/C ratio is .

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