Determine the equivalent annual cost of each

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Reference no: EM131818021

Two types of water impoundment reservoirs are being considered. The first would have a construction cost of $6,500,000, an annual maintenance cost of$300,000, a life that is assumed to be infinite, and periodic major upgrade costs of $1,000,000 every fifteen years beginning in the fifteenth year of life. The other would cost $5,000,000 to build, would last an estimated 30 years with no salvage value, and would have annual maintenance costs of$550,000. Using an i of 6%, determine the equivalent annual cost of each. If both can provide the same capability to impound water, which should be chosen?

Reference no: EM131818021

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