The town of Dry Gulch needs an additional supply of water from Pine Creek. The town engineer has selected two plans for comparison: a gravity plan (divert water at a point 10 miles up Pine Creek and carry it through a pipeline by gravity to the town) and a pumping plan (divert water at a point closer to the town and pump it to the town). The pumping plant would be built in two stages, with half-capacity installed initially and the other half installed 10 years later.

An analysis will assume a 40-year life, 10% interest, and no salvage value. Costs are as follows: Use an annual cash flow analysis to determine the more economical plan.

Gravity Pumping $2,800,000 $1,400,000 200,000 Initial investment Additional investment in None 10th year Operation and maintenance Power cost 10,000/yr 25,000/yr Average first 10 years Average next 30 years 50,000/yr 100,000/yr None None