Homework Answers
As per the question City of San Antonio is considering is consider for 50 year plan and opted for aquifer for desalting the water
The revenue generated in the year 1 to 3 from the aquifer =$4,100,000
From the 4th year to 24th year the revenue decreases by 10% per year each year
So the revenue or cash flow (From 4th year to 24th year) in current year = Cash flow of previous year –(Cash flow of previous year) x (10/100)
The effective life of the aquifer = 24 years
Rate of interest (r) = 6% =0.06
Present Value Factor (PVF) @6% = (1+ r)-N = (1+ 0.06)-N
Where , rate of interest (r) = 0.06 and N= number of years
|
Year(N) |
Cash Flow |
Present Value |
Present Value of cash flow |
|
1 |
4100000 |
0.94339623 |
3867924.528 |
|
2 |
4100000 |
0.88999644 |
3648985.404 |
|
3 |
4100000 |
0.83961928 |
3442439.06 |
|
4 |
3690000 |
0.79209366 |
2922825.617 |
|
5 |
3321000 |
0.74725817 |
2481644.392 |
|
6 |
2988900 |
0.70496054 |
2107056.559 |
|
7 |
2690010 |
0.66505711 |
1789010.286 |
|
8 |
2421009 |
0.62741237 |
1518970.998 |
|
9 |
2178908.1 |
0.59189846 |
1289692.357 |
|
10 |
1961017.29 |
0.55839478 |
1095021.812 |
|
11 |
1764915.56 |
0.52678753 |
929735.5004 |
|
12 |
1588424 |
0.49696936 |
789398.0644 |
|
13 |
1429581.6 |
0.46883902 |
670243.6396 |
|
14 |
1286623.44 |
0.44230096 |
569074.7883 |
|
15 |
1157961.1 |
0.41726506 |
483176.7087 |
|
16 |
1042164.99 |
0.39364628 |
410244.3753 |
|
17 |
937948.49 |
0.37136442 |
348320.6957 |
|
18 |
844153.64 |
0.35034379 |
295743.9865 |
|
19 |
759738.28 |
0.33051301 |
251103.3861 |
|
20 |
683764.45 |
0.31180473 |
213200.9876 |
|
21 |
615388 |
0.29415540 |
181019.705 |
|
22 |
553849.2 |
0.27750510 |
153695.9759 |
|
23 |
498464.28 |
0.26179726 |
130496.5833 |
|
24 |
448617.86 |
0.24697855 |
110798.9878 |
|
Present Worth of cash flow = |
$29699824.4 |
||
The present worth (PW) of the revenue from the desalting aquifer option at an interest rate of 6% per year is $29699824.4
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