Officials of Gwinnett County, one of the fastest growing counties in the country, are looking for ways to expand their sewer system. They are considering two alternative sewer designs. All annual payments will be made at the end of the year. Data for the two alternatives is given below. Which design should they select? The interest rate is 5%.
Design 1
Lift station, shallow installation
Useful life: 20 years
Cost new: $500,000
Operations and Maintenance: $10,000 for years 1-3, increasing by $1,050/year every year thereafter (i.e. $11,050 @ EOY4, 12,100 @ EOY5, etc.).
Salvage Value: $75,000 @ EOY 20
Design 2
Gravity Flow, deep installation
Useful life: 25 years
Cost new: $800,000
Operations and Maintenance: $1,000/year
Salvage Value: $50,000 @ EOY 25