Question

Please answer the following by hand showing all arithmatic and original formulas, please do not use a graphic calculator.

The province of Ontario is planning to construct a new hydropower plant to help make energy prices more affordable, as well as to support improved public health and environmental quality. The construction of the hydropower plant will start by the beginning of 2023 and will take 3 years at a cost of $200 million per year. The cost of maintenance and repairs, which is to start after project completion, is expected to be $5 million for the first 6 years, and to increase by $50,000 per year thereafter. The scrap value of the hydropower plant is estimated to be $25 million at the end of its service life. The project is expected to save the province $55 million per year in energy savings. Assume the present to be the end of 2017/beginning of 2018, the life of the project is till the end of year 2060, and the interest rate to be 5%.

a) Draw a cash flow diagram for this project (from present till 2060). b) What is the Present Worth of the project? c) What is the Future Worth of the project? d) Is it a good investment for the province to make?

Answer 1

c)

d) it is a good investment for the province to make as present worth is positive.