Municipal utility-considering two large-scale conduits

Reference no: EM1383466

A big municipal utility district is considering two large-scale conduits. The first includes construction of a steel pipeline at a cost of $200 million. The pumping and other operating costs are expected to accrue to $6 million per year, increasing by 1% per year. Alternatively, a gravity flow canal can be constructed at a cost of $325 million. The O&M costs for the canal are expected to be $1million at EOY2, rising by $250,000 per year. Which conduit must be built at an interest rate of 6% if:

a) The projects are expected to last for 25 years?

b) The projects are expected to last forever?

Reference no: EM1383466

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