2 Problem 1 (30 points) The town of Melville needs to obtain an additional supply of water from a nearby river. They have been offered two options: diverting water at a point 8 miles upstream and allowing gravity to move the water to the town (the "gravity" plan), or diverting water at a point much closer to the town and using pumps to move the water to the town (the "pumping" plan). The pumping plan would be built in two stages, with half of its capacity installed initially and the other half installed ten years later. For both options, the town wants to use a 40-year life, 10% interest, and no salvage value. The projected costs are in the table below: Initial Cost Additional investment at the end of Gravity $2,800,000 None Pumping $1,400,000 $200,000 the 10th year Annual Operation and Maintenance, $10,000 $25,000 excluding Power Annual Power Cost None $75,000 Use an Annual Worth analysis to determine the most economical plan for the town.