A regional municipaliy is studying a water supply plan for its
tri-city and surrounding

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Question: A regional municipaliy is studying a water supply plan for its tri-city and surrounding area to t…
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area to the end of year 2055. To satisfy the water demand, one
suggestion is to construct

a pipeline from a major lake some distance away. Construction
would start in 2015 and

take five years at a cost of $20 million per year starting end
of 2015. The cost of maintenance and repairs

starts after completion of construction and for the first year
is $2 million, increasing by

1% per year thereafter. At an interest rate of 6%, what is the
present worth of this

project?

Assume that all cash flows take place at year-end. Consider the
present to be the beginning of 2011. Assume that
there is no salvage value at the end of year
2055.

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