Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You have been hired to compare two alternatives for obtaining additional water needed by the city of Chicago. The first alternative, building a new reservoir
You have been hired to compare two alternatives for obtaining additional water needed by the city of Chicago. The first alternative, building a new reservoir on a river that is quite popular for whitewater rafting, has an initial cost of $1.2 million, annual O&M of $100,000/year, and annual benefits of $300,000/year. The second alternative would involve building a new pipeline to an existing reservoir and would have an initial cost of $300,000, annual O&M of $50,000/year, and annual benefits of $100,000/year. Both alternatives will produce sufficient water to meet the needs of the city for the next 25 years. Assume that both alternatives have an indefinite lifetime and that the city uses an interest rate of 3%. Note that in both alternatives, the annual benefits to the city are revenues from water sales. Form a cash flow table for the two alternatives Compare the two alternatives using the following methods: Present worth analysis Annual cash flow analysis Incremental benefit/cost ratio Rate of return (not incremental) Payback period Make a recommendation to the city as to which project should be selected, justifying your recommendation. Discuss at least two other issues that the city should consider beyond your economic analysis
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started