Question
In order to provide drinking water as part of its 50-year plan, a west coast city isconsidering constructing a pipeline for importing water from a
In order to provide drinking water as part of its 50-year plan, a west coast city isconsidering constructing a pipeline for importing water from a nearby community that has aplentiful supply of brackish ground water. A full-sized pipeline can be constructed at a costof $95 million now. Alternatively, a smaller pipeline can be constructed now for $85million and enlarged 20 years from now for another $100 million. The pumping cost will be$25,000 per year higher for the smaller pipeline during the first 20 years, but it will beapproximately the same thereafter. Both pipelines are expected to have the same useful lifewith no salvage value.
At an interest rate of 12% per year, which alternative is moreeconomical?
The present worth of the full-sized pipeline is determined to be$_________ and that of the small-sized pipeline is $___________ .
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