In: Finance
El Paso Water Utilities (EPWU) purchases surface water for treatment and distribution to EPWU customers from El Paso County Water Improvement District during the irrigation season. A new contract between the two entities resulted in a reduction in future price increases in the cost of the water from 10% per year to 5% per year for the next 20 years. If the cost of water next year (which is year 1 of the new contract) will be $530 per acre-ft. using an interest rate of 10% per year,
a) Determine the difference between present worth (in $/acre-ft) of the old and the new contracts (solve using both formula and spreadsheet functions).
b) If new contract also needs a future payment of $2,000 at year 20, what is the equivalent annual worth of the new contract? (solve using both table values and spreadsheet functions)