The construction of a Water Treatment Plant project over 3 years has a cost of $20,000,000. The facility will operate for 47 years, which makes its span a total of 50 years. Assume there will be no inflation during the entire life of the project and that all benefits and costs are known. The operating costs are $150,000 per year, the project will treat 50,000,000 gallons of water per year, and analytical investigations have suggested that the project produces the benefit of $0.05 per gallon of the treated water. A loan will be given to finance 40% of the capital cost ($20,000,000) at a borrowing rate of 6.25% with 20 equal annual payments, including both principal and interest. Considering a MARR value of 10%. 1. Calculate the NPV and the B/C ratio given the discount rate. 2. Explain whether or not the project would be a good investment.

The construction of a Water Treatment Plant project over 3 years has a cost of $20,000,000. The facility will operate for 47 years, which makes its span a total of 50 years. Assume there will be no inflation during the entire life of the project and that all benefits and costs are known. The operating costs are $150,000 per year, the project will treat 50,000,000 gallons of water per year, and analytical investigations have suggested that the project produces the benefit of $0.05 per gallon of the treated water. A loan will be given to finance 40% of the capital cost ($20,000,000) at a borrowing rate of 6.25% with 20 equal annual payments, including both principal and interest. Considering a MARR value of 10%. 1. Calculate the NPV and the B/C ratio given the discount rate. 2. Explain whether or not the project would be a good investment.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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