Question

will rate and like thanks! Had trouble. can you please show work!

PART 2 -COMPARING TWO ALTERNATIVES The city of Bernoulliville is currently facing a water crisis and will need reservoir. The city has hired you as a construction e and select the most affordable option to bring water into the city. Assume as hired you as a construction expert to evaluate the cost of two alternative proje er crisis and will need to pipe water from a nearby to bring water into the city. Assume the MARR is 7% RESERVIOR PUMPING STATION BERNOULLIVILLE Pipeline A (10 miles) Figure 1 Pipeline A-Gravity Line & Pipeline B - Line Using Pumping Station Initial Investment Cost of Pumping Station Operation & Maintenance (O&M) Costs Power Costs during 1-10 yrs Power Costs after 10 years Cost for Pipeline A $2,800,000 N/A $40,000/year 0.00 0.00 Cost for Pipeline B $1,500,000 $500,000 $60,000/year $40,000/year $120,000/year Evaluate the two pipeline projects over a 40-year service life and determine which option is less expensive:

Answer 1

We decide upon two options by comparing the Present value of the outflows.

Pipeline A:

Year	Total costs	Discount Factor @ 7%	Discounted Cashflows
0	Initial Investment = 2800000	1.0000	2,800,000.00
1-40	Maintenance = 40000	13.3317	533,268.35
		Total	3,333,268.35

Use Present Value table and plot 7% under 40 years, we get 13.3317.

Pipeline B:

Year	Initial investment (A)	Maintenance (B)	Power Costs ( C)	Total Costs (A+B+C)	Discount Factor @ 7%	Discounted Cashflows
0	1500000+ 500000 = 2000000			2000000	1.0000	2,000,000.00
1-10		60000	40000	100000	7.0236	702,358.15
11-40		60000	120000	180000	6.3081	1,135,462.91
					Total	3,837,821.07

We look in PV table and plot 7% under 10 years we get 7.0236. As in Pipeline 1 we already know PV for 40 years @ 7% = 13.3317. So PV from 11 to 40 years = 13.3317 - 7.0236 = 6.3081.

Suggestion: Since the PV of total expenditure under Pipeline A is lesser, we recommend it.

Please comment in case of any query regarding the solution.