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The electric power supply for a new industrial complex is being planned, and you are asked to compare the cost of constructing a completely new electric generating system to the cost of buying power from a nearby utility already in existence. Find the equivalent annual cost of cach altemative. In either case, i = 12 percent, and the system will last 25 years. All annual costs are charged at the end of the year. Alternative A. Construct a new system. cost of new construction $25,000,000 %3D O & M cost = $3,000,000/yr for the first 3 yr, increasing by 6%lyr for every year thereafter ($3,180,000 at EOY 4, $3.370,800 at EOY 5, etc.) salvage value at EOY 25 = $5,000,000 Alternative B. Purchase electric power from an existing nearby electric company on a long-term, 25-ycar contract for $6,000,000 per year, with no escalation clauses. All neces- sary construction is paid for by the neighboring utility. Find the equivalent annual cost of altermative A, and compare with alternative B.

The electric power supply for a new industrial complex is being planned, and you are asked to compare the cost of constructing a completely new electric generating system to the cost of buying power from a nearby utility already in existence. Find the equivalent annual cost of cach altemative. In either case, i = 12 percent, and the system will last 25 years. All annual costs are charged at the end of the year. Alternative A. Construct a new system. cost of new construction $25,000,000 %3D O & M cost = $3,000,000/yr for the first 3 yr, increasing by 6%lyr for every year thereafter ($3,180,000 at EOY 4, $3.370,800 at EOY 5, etc.) salvage value at EOY 25 = $5,000,000 Alternative B. Purchase electric power from an existing nearby electric company on a long-term, 25-ycar contract for $6,000,000 per year, with no escalation clauses. All neces- sary construction is paid for by the neighboring utility. Find the equivalent annual cost of altermative A, and compare with alternative B.

Essentials Of Investments
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
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3.8. The clectric power supply for a new industrial complex is being planned, and you are asked to compare the cost of constructing a completely new electric generating system to the cost of buying power from a nearby utility already in existence. Find the equivalent annual cost of each altermative. In cither casc, i charged at the end of the year. 12 percent, and the system will last 25 years. All annual costs are Alternative A. Construct a new system. cost of new construction O & M cost = $25,000,000 $3,000,000/yr for the first 3 yr, increasing by 6%/yr for every year thereafter ($3,180,000 at EOY 4, $3.370,800 at EOY 5, etc.) %3D salvage value at EOY 25 = $5,000,000 %3D Alternative B. Purchase electric power from an existing nearby electric company on a long-term, 25-ycar contract for $6,000,000 per year, with no escalation clauses. All neces- sary construction is paid for by the neighboring utility. Find the equivalent annual cost of alternative A, and compare with alternative B.
Transcribed Image Text:3.8. The clectric power supply for a new industrial complex is being planned, and you are asked to compare the cost of constructing a completely new electric generating system to the cost of buying power from a nearby utility already in existence. Find the equivalent annual cost of each altermative. In cither casc, i charged at the end of the year. 12 percent, and the system will last 25 years. All annual costs are Alternative A. Construct a new system. cost of new construction O & M cost = $25,000,000 $3,000,000/yr for the first 3 yr, increasing by 6%/yr for every year thereafter ($3,180,000 at EOY 4, $3.370,800 at EOY 5, etc.) %3D salvage value at EOY 25 = $5,000,000 %3D Alternative B. Purchase electric power from an existing nearby electric company on a long-term, 25-ycar contract for $6,000,000 per year, with no escalation clauses. All neces- sary construction is paid for by the neighboring utility. Find the equivalent annual cost of alternative A, and compare with alternative B.
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