A city of about? 30,000 people is trying to attract a manufacturing business. It has offered to install and operate a water pumping plant to provide service to the proposed factory site. This would cost the city ?$160,000 ?now, plus $19,000 per year in annual operating costs for the next 5? years, all in? Year-0 dollars.
To reimburse the? city, the new business must pay a fixed uniform annual? fee, A, at the end of each year for 5 years. At the end of the 5? years, the business will buy the plant from the city for $160,000. All the payments by the business to the city will be in actual dollars. It has been agreed that the city should get real? rate-of-return of 7?% on this investment. If inflation is expected to average 3.74% per year over the five? years, determine the amount of the uniform? fee, A, that the business should pay the city.
The PW of the investment from the point of the city is:
Note?: Include the initial? cost, anual operating costs and the salvage value? (exclude the annual? payments, A). Use negative sign for costs.
The annual? fee, A, to be paid by the business to the city is: