Recover the capital cost and all other operating costs

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Reference no: EM131044802

The city of Carlsbad in California is considering building a $300 million water-desalination plant. The facility would be the largest in the Western Hemisphere, producing 50 million gallons of drinking water a day - enough to supply about 100,000 homes. This plant, which uses improved membranes and pumping system to bring down the energy cost to $1.10 in electricity to produce 1,000 gallons of water. Suppose the desalination plant is fully operational and you expect to operate it continuously for 20 years, with an estimated salvage value of $20 million. The operating and maintenance costs (excluding the energy cost) amount to $15 million the first year and will increase at a rate of 3% each year. If the city plans to sell the water for about $950 per acre-foot (an acre-foot is 325,851 gallons - enough water for four people per year.), can it recover the capital cost and all other operating costs? Assume the city's interest rate for this water project is known to be 6% compounded annually.

Reference no: EM131044802

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