The National Park Service is considering two plans for rejuvenating the forest and landscape of a large tract of public land. The study period is indefinitely long, and the Park Service's MARR is 10% per year. You have been asked to compare the two plans using the present worth method. The first plan (Skyline) calls for an initial investment of $550 ,000,
with expenses of $25,000 per year for the first 20 years and $35,000 per year thereafter. Skyline also requires an expenditure of $200,000 twenty years after the initial investment, and this will repeat every 20 years thereafter. The second plan(Prairie View)has an initial investment of $650,000 followed by a single (one-time) investment of $290,000 thirty years later. Prairie View will incur annual expenses of$11 ,000
forever. Based on the present worth, which plan would you recommend? Note that the present worth of an alternative when N = infinity is known as "Capitalized Worth (CW)".
WHAT IS CW FOR SKYLINE
WHAT IS CW FOR PARIE VIEW
WHAT PLAN IS RECOMENEDED
Homework Answers
Park Service MARR is 10 % Per Year
Capitalized Worth (CW) = Initial Payment + PV of Recurring Expenses + PV of Additional Investment
| Skyline Plan | Amount in Dollars |
| Initial Investment | 550000 |
| Recurring Expenses per Year for first 20 Years | 25000 |
| Recurring Expenses per Year for after 20 Years | 35000 |
| Additional Expenditure After Every 20 Years | 200000 |
| (550000+ (8.5316 * 25000) + (9.9148 - 8.5316 )*35000 + 200000*0.01486 + 200000 * 0.0221) | |
| Capitalized Worth of Skyline | 8,19,094 |
| Prairie View | Amount in Dollars |
| Initial Investment | 650000 |
| Recurring Expenses Per Year | 11000 |
| Additional Investment after 30 Years | 290000 |
| 650000 + 11000* 9.9148 + 290000 * 0.0573 | |
| Capitalized Worth of Prairie View | 7,75,680 |
As the Expenses of Prairie View is lesser than Skyline Plan , it is better to Invest the amount in Prairie View.
Compared to Skyline Plan , Prairie View has lesser Recurring Expense and once additional investment after 30 Years but in Skyline Plan there is an Addtional Investment of 200000 every 20 Years.
Though Initial Investment is more than 100000 in Prairie View compared to Skyline Plan.
So its better to invest in Prairie View.
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