City engineers are considering two plans for municipal aqueduct tunnels. They are to decide between the two using an interest rate of 8 percent. Plan A is a full-capacity tunnel that will meet the needs of the city forever. Its cost is $3 000 000 now and $100 000 every 10 years for lining repairs. Plan B involves building a half-capacity tunnel now and a second half-capacity tun- nel in 20 years, when the extra capacity will be needed. Each of the half-capacity tunnels costs $2 000 000. Maintenance costs for each tunnel are $80 000 is also an additional $15 000 per tunnel per year required to pay for extra pumping costs caused by greater friction in the smaller tunnels. (a) Which alternative is preferred? Use a present worth comparison. (b) Which alternative is preferred? Use an annual worth comparison. every 10 years. There

City engineers are considering two plans for municipal aqueduct tunnels. They are to decide between the two using an interest rate of 8 percent. Plan A is a full-capacity tunnel that will meet the needs of the city forever. Its cost is $3 000 000 now and $100 000 every 10 years for lining repairs. Plan B involves building a half-capacity tunnel now and a second half-capacity tun- nel in 20 years, when the extra capacity will be needed. Each of the half-capacity tunnels costs $2 000 000. Maintenance costs for each tunnel are $80 000 is also an additional $15 000 per tunnel per year required to pay for extra pumping costs caused by greater friction in the smaller tunnels. (a) Which alternative is preferred? Use a present worth comparison. (b) Which alternative is preferred? Use an annual worth comparison. every 10 years. There

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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