Water supply for an irrigation system can be obtained from a stream in some nearby mountains. Two alternatives are being considered, both of which have
Water supply for an irrigation system can be obtained from a stream in some nearby mountains. Two alternatives are being considered, both of which have a 20 year life span with no salvage value, provided proper maintenance is performed. The rst is a concrete reservoir with a steel pipe system and the second is an earthen dam with a wooden aqueduct. Below are the costs associated with each. Concrete reservoir Earthen dam First cost $300 000 $220 000 Annual maintenance costs $14 000 $21 000 Replacing the wood portion N/A $35 000 of the aqueduct every 8 years Compare the present cost of the two alternatives, using an interest rate of 5%. Which alternative should be chosen? Repeat the problem by comparing the annual cost of the two alternatives. Using the data in problem 2, determine the annual cost of the two alternatives using an innite life but where the rst cost will need to be reinvested every 20 years and the wood replacement occurs every 8 years independent of the rst cost. Comment on the differences calculated between the two questions for the two alternatives
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