Question

In: Economics

The City of Bourbonnais plans to construct a water purificationfacility that requires $1,000,000 investment in...

The City of Bourbonnais plans to construct a water purification facility that requires $1,000,000 investment in the beginning and $20,000 O&M costs per year. The city will expect additional revenue of $70,000 per year from residents.

Assuming the city’s MARR is 10% compounded yearly and the facility is handed over after 20 years to a utility company that would pay $120,000 for the facility, compute the net present worth of the project and determine if the project is economically worthy? . [Show all factor notations involved in the calculation.]

Solutions

Expert Solution

First cost = $ 1,000,000

Annual O&M cost = $ 20,000

Annual Revenue = $ 70,000

Sell after 20 year for $ 120,000

Interest = 10%

Calculating the net present worth of the investment

The net present worth of the cash flow is negative therefore, the investment is not beneficial.

Hence, the project is not economically worthy.

Rahul Sunny answered 2 years ago
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