In: Economics
The city of Carlsbad in California is considering building a $300 million water-desalination plant. The facility would be the largest in the Western Hemisphere, producing 50 million gallons of drinking water a day – enough to supply about 100,000 homes. This plant, which uses improved membranes and pumping system to bring down the energy cost to $0.90 in electricity to produce 10,000 gallons of water. Suppose the desalination plant is fully operational and you expect to operate it continuously for 20 years, with an estimated salvage value of $20 million. The operating and maintenance costs (excluding energy cost) amount to $15 million the first year and will increase at a rate of 3% per year. If the city plans to sells the water for about $925 per acre-foot (an acre-foot is 325,851 gallons – enough water for four people per year.), can it recover the capital cost and other operating costs? Assume the city’s interest rate for this water project is known to be 6%.
Pls see table below for calculations and answer.
A | B | C | D | E | F = Sum(A to E) | PV = F/1.06^Time | |
Time | Capital Cost | Salvage Value | Electricity cost = $0.90*50million*365/10000 | Optg & Maintenance cost | Revenue = $925*50M*365/325851 | ||
0 | -300000000 | -300000000 | -300000000 | ||||
1 | -1642500 | -15000000 | 51806654 | 35164154 | 33173730 | ||
2 | -1642500 | -15450000 | 51806654 | 34714154 | 30895473 | ||
3 | -1642500 | -15913500 | 51806654 | 34250654 | 28757510 | ||
4 | -1642500 | -16390905 | 51806654 | 33773249 | 26751576 | ||
5 | -1642500 | -16882632 | 51806654 | 33281522 | 24869889 | ||
6 | -1642500 | -17389111 | 51806654 | 32775043 | 23105112 | ||
7 | -1642500 | -17910784 | 51806654 | 32253370 | 21450333 | ||
8 | -1642500 | -18448108 | 51806654 | 31716046 | 19899040 | ||
9 | -1642500 | -19001551 | 51806654 | 31162603 | 18445097 | ||
10 | -1642500 | -19571598 | 51806654 | 30592556 | 17082724 | ||
11 | -1642500 | -20158746 | 51806654 | 30005408 | 15806475 | ||
12 | -1642500 | -20763508 | 51806654 | 29400646 | 14611220 | ||
13 | -1642500 | -21386413 | 51806654 | 28777741 | 13492128 | ||
14 | -1642500 | -22028006 | 51806654 | 28136148 | 12444646 | ||
15 | -1642500 | -22688846 | 51806654 | 27475308 | 11464486 | ||
16 | -1642500 | -23369511 | 51806654 | 26794643 | 10547612 | ||
17 | -1642500 | -24070597 | 51806654 | 26093557 | 9690219 | ||
18 | -1642500 | -24792714 | 51806654 | 25371439 | 8888726 | ||
19 | -1642500 | -25536496 | 51806654 | 24627658 | 8139761 | ||
20 | 20000000 | -1642500 | -26302591 | 51806654 | 43861563 | 13676243 | |
Total | 63191999 |