Random Single Amounts and Uniform Series El Paso Water is pl

Random Single Amounts and Uniform Series El Paso Water is planning to install wind turbines to provide enhanced evaporation of reverse osmosis concentrate from its inland desalting plant. The company will spend $1.5 million in year 1 and $2 million in year 2. Annual maintenance is expected to cost $65,000 per year through year 10. Determine the equivalent annual cost of the project in years 1 through 10 at an interest rate of 6% per year. Also, develop a single-cell spreadsheet function to display the total A value

Solution

The required single function for this annual equivalent cost is given by

A = PMT(6%,10,-((PV(6%,1,0,-1500000)+PV(6%,2,0,-2000000)+PV(6%,10,-65000)))) = $499,110.

Note that the annual equivalent cost for this part is given by

A = (1.5M*(P/F, 6%, 1) + 2M(P/F, 6%, 2) + 65000(P/A, 6%, 10))*(A/P, 6%, 10)

A = (1.5*1000000*0.9434+2*1000000*0.8899964+65000*7.36009)*0.135868

= $499,111,

Hence from both methods we get approximately same answer.