1. An electric utility is considering upgrading its facilities to cut consumer costs. Currently these consumer costs total $350,000 per year. Transformer upgrade Y would have an initial cost of $750,000, would last for 20 years with no salvage value, would save the utility $20,000 per year in operating costs compared to the present situation and would result in consumer costs of 250,000 per year compared to the current $350,000 per year.
Which Transformer would you choose if i=8%.
2. A proposed dam and reservoir would have a construction cost of $40,000,000, would last forever and would have operating expenses of $3,800,000 per year. Fold control features would last forever and would save the public and average of $3,500,000 per year. Flooding of land behind the reservoir would have an adverse effect of $400,000 per year. The government would be able to sell electric power for a net of $500,000 per year. Recreational benefits to the public are expected to be $1,000 per day for 150 days per year. Should the project be built? I = 6%
Repeat using I= 4%.