Question

A municipal water authority is considering the installation of a new water system. Two options are being considered. The first option is a steel pipeline with an installation cost of $225 million. Annual maintenance and pumping costs begin at $15 million and increase by $1.0 million per year. The second option is a gravity fed concrete canal with an installation cost of $400 million. Annual maintenance costs begin at $0.5 million and increase by $0.4 million per year. If the water system is expected to last 100 years and the interest rate is 5% per year compounded yearly, which system is cheapest? Compare the present worth of both options.

Answer 1

Option 2 is cheapest

Explanation

Please see attachment . I have included the first and the last information to evaluate the options. Let me know if you need more information .