Question

An environmental consultant is considering the installation of a water storage tank for a client. The tank is estimated to have an initial cost of $310,000, and annual maintenance costs are estimated to be $8,200 per year. As an alternative, a holding pond can be provided a short distance away at an initial cost of $210,000 for the pond plus $90,000 for pumps and piping. Annual operating and maintenance costs for the pumps and holding pond are estimated to be $10,000. The planning horizon is 20 years, and at that time, neither alternative has any salvage value. MARR is 18 %/year

What is the present worth of each alternative?

Storage tank? $_____

Holding pond?$____

Answer 1

Present worth of Storage tank is computed as shown below:

= $ 310,000 + $ 8,200 / 1.18¹ + $ 8,200 / 1.18² + $ 8,200 / 1.18³ + $ 8,200 / 1.18⁴ + $ 8,200 / 1.18⁵ + $ 8,200 / 1.18⁶ + $ 8,200 / 1.18⁷ + $ 8,200 / 1.18⁸ + $ 8,200 / 1.18⁹ + $ 8,200 / 1.18¹⁰ + $ 8,200 / 1.18¹¹ + $ 8,200 / 1.18¹² + $ 8,200 / 1.18¹³ + $ 8,200 / 1.18¹⁴ + $ 8,200 / 1.18¹⁵ + $ 8,200 / 1.18¹⁶ + $ 8,200 / 1.18¹⁷ + $ 8,200 / 1.18¹⁸ + $ 8,200 / 1.18¹⁹ + $ 8,200 / 1.18²⁰

= $ 353,892.52 Approximately

Present worth of Holding pond is computed as shown below:

= $ 210,000 + $ 90,000 + $ 10,000 / 1.18¹ + $ 10,000 / 1.18² + $ 10,000 / 1.18³ + $ 10,000 / 1.18⁴ + $ 10,000 / 1.18⁵ + $ 10,000 / 1.18⁶ + $ 10,000 / 1.18⁷ + $ 10,000 / 1.18⁸ + $ 10,000 / 1.18⁹ + $ 10,000 / 1.18¹⁰ + $ 10,000 / 1.18¹¹ + $ 10,000 / 1.18¹² + $ 10,000 / 1.18¹³ + $ 10,000 / 1.18¹⁴ + $ 10,000 / 1.18¹⁵ + $ 10,000 / 1.18¹⁶ + $ 10,000 / 1.18¹⁷ + $ 10,000 / 1.18¹⁸ + $ 10,000 / 1.18¹⁹ + $ 10,000 / 1.18²⁰

= $ 353,527.47 Approximately

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