Question

The Metropolitan Water Utility is planning to upgrade its SCADA system for controlling well pumps, booster pumps, and disinfection equipment so that everything can be controlled from one site. The first phase will reduce labor and travel costs by an estimated $31,000 per year. The second phase will reduce costs by an estimated $20,000 per year. If phase I will occur in years1 through 3 and phase II in years 4 through 8, what is

a) The present worth of the savings

b) The equivalent annual worth for years 1 through 8 of the savings?

Use an interest rate of 6 %.

Solve using tabulated factors AND spreadsheet on excel

Answer 1

Page: | Date: Solution Present worth or value will be By using the following formula calculated given below. NPV = CFU Cfn (trgh (tr) Cltry2 (1+r)3 Where NPV = Chi & r = n = Net Present value worth cash flow at penod 1 discount rate No. of Periods (2) By using the above Annual saving for formula: phase I & Present worth of Phase 2 will as under Years 3 Savings. $31000 $31000 $31000 $20,000 $ 20,000 $ 20,000 $ 20,000 $20,000 Net Pvf 6% 0.9434 0. 8900 008396 0.7921 0.7473 0.7050 0.6657 0.6274 Present worth PVCG) 29245.40 2 7590.00 26027.60 15842000 19946.00 14100.00 13302.00 12548.00 $153601 (6) Equivalent Annual worth = Net Present worth PUF 6% 8 years $ 153.60|_ 6.210 Hence EAC $ 24734 $ 94734