To which is the present worth most sensitive

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A regional municipality is studying a water supply plan for the area to the end of the year 2050. To satisfy the water demand, one suggestion is to construct a pipeline from a distant lake. It is now the end of 2010. Construction would start in the year 2015 (five years from now) and take five years to complete at a cost of $20 million per year. Annual maintenance and repair costs are expected to be S2 million and will start the \~ear following project completion (all costs are based on current estimates). From a predicted inflation rate of 3% per year, and the real MARR, city engineers have determined that a MARR of 7% per year is appropriate. Assume that all cash flows take place at the end of the year and that there is no salvage value at the end of 2055.

(a) Find the present worth of the project.

(b) Construct a sensitivity graph showing the effects of 5% and 10% increases and decreases in the construction costs, maintenance costs, and inflation rate. To which is the present worth most sensitive?

Reference no: EM131374787

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