Question
You are the project manager for the design and construction of a new waste-to-energy power plant. There are three possible scenarios for design and construction
You are the project manager for the design and construction of a new waste-to-energy power plant. There are three possible scenarios for design and construction of the new plant. Initial construction costs, annual operating and maintenance costs, and projected annual revenues are listed in the table below. Your client wishes to have a minimum annual return of investment (MARR) of 10% for a period of 20 years. At the end of 20 years, your client expects to sell the plant and receive the salvage values listed in the following table. Disregard the effects of taxes, inflation and depreciation.
alt 1 | alt 2 | alt 3 | |
initial construction | $15M | $20M | $25M |
annual O&M | $1.5M | $2M | $2.5M |
annual revenue | $4M | $5.5M | $6M |
salvage value EOY20 | $3M | $4M | $5M |
Find:
a.) Present worth of cost only for each alternative.
b.) Using incremental Benefit-cost analysis, which alternative is recommended?
Justify your answer and show analysis.
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