You have been hired to advise a town how best to proceed with the construction of a 200,000 m³ water supply reservoir. Since only 120,000 m³ of storage will be required for the next 25 years, an alternative to building the full capacity now is to build the reservoir in two stages. Initially, the reservoir could be built with 120,000 m³ of capacity and then 25 years hence, the additional $80,000 m³ of capacity could be added by increasing the height of the dam.

What is the Net Present Cost for the Two Stage Construction Option?

Estimated costs for each option are shown below:

Construction Options Construction Cost Annual Maintenance Cost Two Stage Construction First stage: 120,000 cm reseivior $14,200,000 Second stage: 80,000 cm reservior expansion $12,600,000 Single Stage Construction 200,000 cm reservior construction $22,400,000 $75,000 $25,000 $100,000 Construction Options Construction Cost Annual Maintenance Cost Two Stage Construction First stage: 120,000 cm reseivior $14,200,000 Second stage: 80,000 cm reservior expansion $12,600,000 Single Stage Construction 200,000 cm reservior construction $22,400,000 $75,000 $25,000 $100,000