Waterloo North Hydro has two options for upgrading a geothermal power station to meet new government standards. Option 1: Waterloo North Hydro will make the upgrades themselves. This is expected to cost $11,400 at the end of every six months for 15 years. At the end of the operation (in 15 years) Waterloo North Hydro expects to sell all equipment needed for the upgrade for $99,000. Option 2: Pay experienced contractors. This will cost $46,000 up front and $11,000 semi- annually (at the end of every six months) for 14 years. Assume all interest is 2.19% compounded semi-annually. Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar. Round all other answers to two decimal places where applicable.
Waterloo North Hydro has two options for upgrading a geothermal power station to meet new government standards. Option 1: Waterloo North Hydro will make the upgrades themselves. This is expected to cost $11,400 at the end of every six months for 15 years. At the end of the operation (in 15 years) Waterloo North Hydro expects to sell all equipment needed for the upgrade for $99,000. Option 2: Pay experienced contractors. This will cost $46,000 up front and $11,000 semi- annually (at the end of every six months) for 14 years. Assume all interest is 2.19% compounded semi-annually. Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar. Round all other answers to two decimal places where applicable.
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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Transcribed Image Text:Waterloo North Hydro has two options for upgrading a geothermal power station to
meet new government standards.
Option 1: Waterloo North Hydro will make the upgrades themselves. This is expected to
cost $11,400 at the end of every six months for 15 years. At the end of the operation (in
15 years) Waterloo North Hydro expects to sell all equipment needed for the upgrade
for $99,000.
Option 2: Pay experienced contractors. This will cost $46,000 up front and $11,000 semi-
annually (at the end of every six months) for 14 years.
Assume all interest is 2.19% compounded semi-annually.
Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar.
Round all other answers to two decimal places where applicable.
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