EconomicsThe government plans to increase thecapacity of her existing water transmissionlines in Cebu City. Two plans are underconsideration. Plan A requires theconstruction of a parallel pipeline, the flowbeing maintained by gravity. The initial cost isP189376952 and the life is 50 years, with anannual operating cost of P7825990 for the 1st25 years and P10659043 for the next 25years. Plan B requires the construction of abooster pumping station costing P100M withthe life of 50 years. The pumping equipmentcost an additional amount of P25M, it has alife of 25 years and a salvage value of P2M.The annual operating cost is P5M. Using thePresent Value (PV) Method and an interest of22% cpd. annually, what is the PV of Plan A?

Present value is equivalent value of all cost today of the plan considering the time and interest…

Economics The government plans to increase the capacity of her existing water transmission lines in Cebu City. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow

Economics The government plans to increase the capacity of her existing water transmission lines in Cebu City. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The government plans to increase the capacity of her existing water transmission lines in Cebu City. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P182,947,337 and the life is 50 years, with an annual operating cost of P5,725,635 for the 1st 25 years and P11,441,794 for the next 25 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 50 years. The pumping equipment cost an additional amount of P25M, it has a life of 25 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 23% cpd. annually, what is the PV of Plan A?
The city of Zamboanga contemplates to increase the capacity of their existing water transmission lines. Two plans are under considerations. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial costs is P2, 750, 000.00 and the life is 40 years, with an annual operating cost of P5, 000.00. Plan B requires the construction of a booster pumping stations coating P1, 050, 000.00 with the life of 40 years. The pumping equipment cost an additional amount of P250, 000.00, it has a life of 20 years and a salvage value of P25, 000. The annual operating costs is P165, 000.00. Which is the most economical plan if the interest rate is 12% and how much is the difference between the two plans. Use present worth method.
The government has two (2) plans to deal with their water supply problem in Zamboanga. Option 1 is to build a complete water pumping plant costing P 2 Billion, which would meet all needs during the 1st 40 years. Annual maintenance costs are estimated to be at P 20M for the 1st 23 years and P 24968327 for the succeeding years, which is the difference between 40 years and 23 years. Option 2 is to build a partial water pumping plant at a cost of P 1.25 Billion, which would be sufficient for the 1st 15 years. At the end of 15 years, the pumping plant will be completed at an estimated cost of P 1.5 Billion. Annual maintenance cost is P 1.5 Million during the 1st 15 years and P3 Million for the succeeding 15 years. At 20% cpd.-a., what is the Present Value of Option 1?
The city of San Fernando contemplates to increase the capacity of her existing water transmission lines. Two plans are under consideration. plan a requires the construction of a parallel pipeline , the flow being maintained by gravity. The initial cost is 2,750,000 and the life is 40 years, with an annual operating cost of 5,000. Plan B requires the construction of a booster pumping station costing 1,050,000 with the life of 40 years. The pumping equipment cost an additional amount of 250,000. It has a life of 20 years and a salvage value of 25,000. The annual operating cost is 165,000. Which is the most economical plan if the interest rate is 12% and how much is the difference between the two plans. Use Present worth Method.
The Newfoundland government is considering three new flood control projects for the Badger area. Projects A and B consist of permanent dikes. Project C is a small dam. The dam will have recreation and irrigation benefits as well as the flood control benefits. Facts about the three projects are shown in the following table. Each project has a life of 25 years. The MARR is 10%. Project A Project B Project C First Cost (millions of $) 206 236 402 Annual Benefits (millions of $) 26.8 32.1 56.8 Annual Operating and Maintenance costs (millions of $) 2.9 2.1 4.8 Part a - Use present worth to choose the best project What is the PW of Project A (in millions of dollars rounded to two decimal points eg. x.xx)? What is the PW of Project B (in millions of dollars rounded to two decimal points eg. x.xx)? What is the PW of Project C (in millions of dollars rounded to two decimal points eg. x.xx)? Which Project is the best choice (Enter either 'A',…
A local government's plan to build a flood canal at a cost of Rp50 trillion this year raises pros and cons. It is estimated that this canal flood can prevent losses of Rp. 400 trillion due to flooding in the area. For the record, the benefits of canal flooding will only be felt 50 years from now. The critics of this policy suggest that instead of building flood canals, the government should invest Rp50 trillion in these funds with an average real rate of return of 5 percent per year. According to critics, after 50 years the government can use the accumulated investment profits to pay for the losses caused by the floods. Do you agree with government critics?
A proposal is being considered to improve an existing road connecting two medium size cities in West Africa to reduce transportation costs. The cost of the project is $1,000,000. Present annual transportation cost for all traffic amounts to $1,270,000 per year and would continue if no improvement is made. After the improvement, annual transportation costs are estimated to be $1,166,000. Assume the life of the project 20 years, and MARR is 12%. Should the project be undertaken? Evaluate this proposal by using the net present value method, benefit/cost method, and internal rate of return method. Assume costs appear at the beginning of each year while benefits at the end of a year.
To decrease costs of operating a lock in a large river, a new system of operation is proposed. It will cost P450,000 to design and build. It is estimated that it will have to be reworked every 10 years at a cost of P50,000. I addition, there will be an expenditure of P40,000 at the end of the fifth year for a new type of gear that will not be available until then. The annual operating costs are expected to be P30,000 for the first 15 years and P25,000 a year thereafter. Compute the capitalized cost of perpetual service at i=12%.
To overcome the impacts of saltwater intrusion, San Diego County is planning to build a Seawater Desalination Plant. Construction of the facility will take three years and cost $15,000,000. The facility has an operating life of 47 years which starts in three years (after completing the construction phase). The entire project, therefore, spans 50 years. There is no inflation during the entire life of the project, and that all benefits and costs are known with certainty (rather unlikely assumptions but OK for early planning). The operating costs are $100,000 per year. The project will treat 30,000,000 gallons of water per year, and analytical investigations have suggested that the project produces the benefit of $0.05 per gallon of the treated water. The state is going to provide a loan to finance 40% of the capital cost ($15M) at a borrowing rate of 6.25% with 20 equal annual payments, including principal and interest. Considering MARR of 10% please answer eh following questions. With…
GoG is considering two alternative proposals to improve road safety and reduce traffic congestion in city “A”: (a) constructing a new bypass or (b) upgrading existing roadways. The Bypass Proposal will have an initial cost of GHC60 million and annual maintenance costs of GHC2.25 million. It is expected to yield benefits of GHC9.75 million per year. The Upgrading Proposal has an initial cost of GHC7 million, annual maintenance costs of GHC262,500 and annual social benefits of GHC1.14 million. Each project has a life of 30 years. The Bypass Proposal, which would have donor funding component, involves a discount rate of 8% while the Upgrading Proposal, to be funded wholly by government, has a discount rate of 4%. i. Calculatethenetpresentvalueofeachproposalanddetermineifit is economically viable ii. Which of the two proposals is more economically justifiable.
Two methods of carrying away surface runoff water from a new subdivision are being evaluated: METHOD A: Dig a ditch. The initial cost would be P3 million and P1 million of redigging and shaping would be required at five-year intervals forever. METHOD B: Lay concrete pipe, The initial cost would be P7.5 million, and replacement pipe would be required at 50-year intervals at a net cost of P9 million indefinitely. At i = 12%, which method is the better one in terms of having a smaller cost?
(engineering economics) A building was purchased by the city government with a gradual payment of Rp. 20 billion at the time of purchase and followed by Rp. 40 billion a year later. The building is expected to be used by the community for 20 years starting after the second payment is made. During operation the dam will require operational and maintenance costs of Rp. 750 million annually. Meanwhile, the benefits that will be obtained by the community as a result of these facilities can be equivalent to Rp. 5 billion per year. In addition, this facility also generates direct income of Rp. 4.7 billion per year. Alternatively, the building can be renovated prior to use. If it is going to be renovated, the city government needs to spend an additional Rp. 10 billion for the two payments as mentioned above. The operational and maintenance costs have not changed, which are still Rp. 750 million per year, while the annual income will increase to Rp. 5.6 billion. Determine alternatives without…

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