Question
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 A | Proposal B | ||
---|---|---|---|
1. | Cost of new furniture for the city manager's office | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
2. | Cost of old generators | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
3. | Cost of new generators | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
4. | Operating cost of old generators | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
5. | Operating cost of new generators | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
6. | The police chief's salary | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
7. | Depreciation on old generators | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
8. | Salvage value of old generators | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
9. | Removal cost of old generators | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
10. | Cost of raising dam | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
11. | Maintenance costs of water plant | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
12. | Revenues from sale of electricity | AnswerIrrelevantRelevant | AnswerIrrelevantRelevant |
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