The town of Glenforest needs an additional supply of water f

The town of Glenforest needs an additional supply of water from a river. The town engineer has selected two plans for comparison. a. Gravity plan: Divert water from upstream and carry the water through a pipeline to the b. Pumping plan: Pump water from the river closer to the town. This plan is built in two town stages, the first stage installed initially and the second stage installed ten years after. Assume alternative is as follows. a 10%pa, interest rate and a 30 year life with no salvage value. The cost of each Alt. Y Pumping plan Alt. X Initial investment Additional investment in the 10th year Operation & maintenance cost Power cost Gravity plan $2,800K $10K per year $1,400K $200K S25K per year $50K per year Determine the more economical plan based on Uniform annual method

Solution

Given,       I = 10%    n = 30yrs

Annual Cost = {$2800(A/P,10%,30)} + $10

                      = $2800(0.106) + $10

                      = $306.8

Note - look for A/P values in Capital Recovery Factor Table.

Pumping Plan – initial cost = $1400k Additional cost at end of year 10 = $200k

                                    Maintenance cost = $25k Power cost = $50k

       Annual cost = {$1400+$200(P/F,10%,10)} + $25 + $50

                               = $1600(0.3855) + $75

                               = $616.8+$75

                               = $691.8

Note – look for P/F values in present factor table / use (1/1+r)n

Conclusion – Choose option a Gravity plan because it has low uniform annual cost.