The government has two (2) plans to deal with their water supply problem in Zamboanga. Option 1 is to build a complete waterpumping plant costing P 2 Billion, which would meet all needs during the 1st 40 years. Annual maintenance costs areestimated to be at P 20M for the 1st 23 years and P 24968327 for the succeeding years, which is the difference between 40years 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 theend of 15 years, the pumping plant will be completed at an estimated cost of P 1.5 Billion. Annual maintenance cost is P 1.5Million 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?

Present value of includes the all cost that are going to occur during the use of equipment life…

Answered: The government has two (2) plans to…

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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Using the B/C ratio method To reduce flood damage in a river valley in Southern Luzon, a flood control dam is being proposed for construction. The initial cost is estimated to be P4,600,000, with annual maintenance and inspection costs of P24,000. Every 5 years, minor reconstruction work will be undertaken on the dam at a cost ofP150,000. If the dam is built, flood damage is expected to be reduced from P800,000 to P100,000 annually. Assuming the dam to be permanent and the interest rate is 8%, should the dam be built?
A state highway department is planning the construction of a toll road. Construction cost will be $300 million (at period = year 0). Annual maintenance is estimated to be $1 million every year from year 1 and in perpetuity. In addition, a major resurfacing will have to be carried out at the cost of $10 million every 10 years in perpetuity. MARR is 10%. It is estimated that 5 million vehicles per year will use the toll road starting in year 1 and in perpetuity, and each vehicle will pay a constant toll $T. Show the (indicative) cash flow diagram for this project. Use AW analysis to determine what breakeven constant toll $T should be charged to each vehicle to make sure benefits will be economically equivalent to costs.
A proposed bridge on the interstate highway is being considered at the cost of 4 million dollars. It is expected that the bridge will have a life of 30 years. Construction costs will be paid by government agencies. Operation and maintenance costs are estimated to be $250,000 per year. Benefits to the public are estimated to be $900,000 per year. The building of the bridge will result in an estimated cost of $250,000 per year to the general public. The project requires a return of 5%. Determine the benefit/cost (B/C) ratio.
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.
Liwayway High School is planning to install solar panels to provide some of the electricity for its groundwater desalting facilty. The project would be done in two phases. The first phase will cost P400 million in year 1 and P500 million in year 2. This investment will result in energy savings (phase 2) of P54,000,000 in year 3, P54,600,000 in year 4, and amounts increasing by P600,000 each year through year 10. Let i = 10% per year.(a) What is the future worth of the savings?(b) Is the cost of the solar project justified by the savings? (Hint: Calculate the difference between savings and cost).
A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2070. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start at the beginning of 2030 and take five years at a cost of $15 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $2 million, increasing by 2 percent per year thereafter. At an interest rate of 7 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2070. Click the icon to view the table of compound interest factors for discrete compounding periods when i= 7%. The present worth of this project is $ million. (Round to two decimal places as needed.)
A city is spending $20 million on a new sewage system. The expected life of the system is 180 years, and it will have no market value at the end of its life. Oper. and maintenance expenses for the system are projected to average $0.6 million per year. If the city's MARR is 8% per year, what is the capitalized worth of the system? Select one: $27.5 million O b $128.0 million $12.5 million O d. $29.3 million
A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2070.To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start at the beginning of 2030 and take fivefive years at a cost of $15 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $2 million, increasing by 1 percent per year thereafter. At an interest rate of 6 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2070. The present worth of this project is how many million. (2 decimal places)
A utility company is considering the following plans to provide a certain service requiredby resent demand and the respective growth of demand for the coming 20 years.Plan R requires an immediate investment of 500,000 in property that has an estimated lifeof 20 years and with 20% terminal salvage value. Annual disbursements for operation andmaintenance will be ₱60,000. Annual property taxes will be 2% of the first cost.Plan S requires an immediate investment of ₱300,000 in property that has an estimatedlife of 20 years with 20% terminal salvage value. Annual disbursements for its operationand maintenance during the first 6 years will be ₱50,000. After 6 years, an additionalinvestment of ₱400,000 will be required having an estimated life of 14 years with 40%terminal salvage value. After this additional property is installed, annual disbursements foroperation and maintenance of the combined property will be ₱60,000. Annual propertytaxes will be 2% of the first cost of property in service…
The state government of Pahang is planning to build a new concrete dam for hydroelectric facility in Jerantut district. Besides generating power, the dam which equipped with flood control system also be built for tourism attraction. The government already identified 2 potential, locations, A or B. The estimated benefits and costs for both locations under consideration are shown in Table 3. The interest Q4 (a) rate for 20 years and 40 years life span are 5% and 7% respectively. Table 3: Estimated costs and benefits Cost and Benefit (RM Location million) A В Initial cost 180 210 Operational and maintenance costs per year Power sales per year Environmental impact per year 1.1 1.5 1.0 1.5 2.3 Recreation benefits per year 2.5 3.1 Irrigation benefits per year 3.2 4.1 Flood control per year 1.5 1.2 (i) Determine the cost, benefit and disbenefit for 20 and 40 years of project life span using present worth (PW) method. (ii) Justify the most suitable location based on the benefit-cost analysis.
A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2080. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start at the beginning of 2030 and take five years at a cost of $15 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $2 million, increasing by 2 percent per year thereafter. At an interest rate of 8 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2080.
The average annual cost of damages caused by floods to a certain subdivision located along Pasig River is estimated at Php 700,000. To build a gravity dam to protect the area from floods, would cost Php 2.5M and would involve an annual maintenance cost of Php 20,000.00. With interest rate at 8% compounded annually, how many years will it take for the dam to pay for itself?

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