Question

In order to provide drinking water as part of its 50-year plan, a west coast city is considering constructing a pipeline for importing water from a nearby community that has a plentiful supply of brackish ground water. A full-sized pipeline can be constructed at a cost of $90 million now. Alternatively, a smaller pipeline can be constructed now for $60 million and enlarged 15 years from now for another $110 million. The pumping cost will be $25,000 per year higher for the smaller pipeline during the first 15 years, but it will be approximately the same thereafter. Both pipelines are expected to have the same useful life with no salvage value.

At an interest rate of 9% per year, which alternative is more economical?

The present worth of the full-sized pipeline is determined to be $_______ and that of the small-sized pipeline is $ _______.

Answer 1

Ans