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The City of Hamilton operates a power plant on the Ohio River. The city uses some of this generated electricity to service Hamilton residents and

The City of Hamilton operates a power plant on the Ohio River. The city uses some of this generated electricity to service Hamilton residents and sells the excess electricity to PJM Interconnection, manager of a wholesale electricity market serving nearby states. The city council is evaluating two alternative proposals:

Proposal A calls for replacing the generators used in the plant with more efficient generators that will produce more electricity and have lower operating costs. The salvage value of the old generators is higher than their removal cost.

Proposal B calls for raising the level of the dam to retain more water for generating power and increasing the force of water flowing through the dam. This will significantly increase the amount of electricity generated by the plant. Operating costs will not be affected.

Required
Presented are a number of cost and revenue items. Indicate in the appropriate columns whether each item is relevant or irrelevant to proposals A and B.

Proposal AProposal B
1.Cost of new furniture for the city manager's officeAnswerIrrelevantRelevantAnswerIrrelevantRelevant
2.Cost of old generatorsAnswerIrrelevantRelevantAnswerIrrelevantRelevant
3.Cost of new generatorsAnswerIrrelevantRelevantAnswerIrrelevantRelevant
4.Operating cost of old generatorsAnswerIrrelevantRelevantAnswerIrrelevantRelevant
5.Operating cost of new generatorsAnswerIrrelevantRelevantAnswerIrrelevantRelevant
6.The police chief's salaryAnswerIrrelevantRelevantAnswerIrrelevantRelevant
7.Depreciation on old generatorsAnswerIrrelevantRelevantAnswerIrrelevantRelevant
8.Salvage value of old generatorsAnswerIrrelevantRelevantAnswerIrrelevantRelevant
9.Removal cost of old generatorsAnswerIrrelevantRelevantAnswerIrrelevantRelevant
10.Cost of raising damAnswerIrrelevantRelevantAnswerIrrelevantRelevant
11.Maintenance costs of water plantAnswerIrrelevantRelevantAnswerIrrelevantRelevant
12.Revenues from sale of electricityAnswerIrrelevantRelevant

AnswerIrrelevantRelevant

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