A city wants its municipal engineer to evaluate three alternatives for supplementing the city's water supply. The first alternative is deep-well pumping at an annual cost of $10500. The second alternative is to instal an 18 inch diameter pipeline from a local surface reservoir at a first cost of $25000 and an annual pumping cost of $7000. The third alternative is to install a large, 24 inch diameter pipeline from the surface reservoir at a first cost of $34000 and an annual pumping cost of $5000. The useful life of all alternatives is 20 years. For the second and third alternatives, salvage value is 10% of first cost. With interest at 8%, which alternative should the engineer recommend? Use present worth analysis.
a) Identify & list all costs/revenues
b) Draw a cash flow diagram
c) Write the appropriate interest-factor equation
d) Calculate the net present worth (i.e., the net worth of the cash flow at "year-0"). Show all interest-factor values.
e) State the decision based upon a comparison between each alternative's PW value (i.e., which alternative has the highest revenue or lowest cost?)