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The pumping cost for delivering water from the Ohio River to Wheeling Steel for cooling hot rolled steel was $1.8 million for the first 4 years. An effective energy conservation program resulted in a reduced cost of $1.77 million in year 5, and $1.74 million in year 6, and amounts decreasing by $30,000 each year through year 10. What is the present worth of the pumping costs in year 0 at an interest rate of 12% per year?

Sagot :

Answer:

  $9,923,100

Explanation:

The computation of the present worth is as follows:

Year         Annual cost      PV factor at 12%    Present value

1             $1,800,000             0.893                    $1.607,400

2           $1,800,000              0.797                     $1,434,600

3             $1,800,000             0.712                      $1,281,600

4            $1,800,000              0.636                     $1,144,800

5         $1,770,000                  0.567                    $1,003,590

6         $1,740,000                  0.507                    $882,180

7          $1,710,000                   0.452                    $772,920

8            $1,680,000                0.404                    $678,720

9           $1,650,000                0.361                      $595,650

10           $1,620,000            0.322                    $521,640

Present worth                                                   $9,923,100

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