Question

The City of San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 4 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 24 years, what is the present worth of the desalting option revenue at an interest rate of 7% per year? The present worth of the desalting option revenue at an interest rate of 7% per year is determined to be $_____?

Answer 1

Present worth = $29.93 million.

This can be computed using NPV function in excel as follows

Year	Revenue
1	4.1
2	4.1
3	4.1
4	4.1
5	3.69
6	3.321
7	2.9889
8	2.69001
9	2.421009
10	2.1789081
11	1.9610173
12	1.7649156
13	1.588424
14	1.4295816
15	1.2866234
16	1.1579611
17	1.042165

Year	Revenue
18	0.9379485
19	0.8441536
20	0.7597383
21	0.6837644
22	0.615388
23	0.5538492
24	0.4984643
NPV	$29.93

WORKINGS