Question

Two possible routes for a power line are under study.

In both cases, the power line will last 15 years, have no salvage value, have annual property taxes of 2% of the first cost and have a yearly power loss of $500/km.

Other costs are:

	Around the lake	Under the lake
Length	15 km	5 km
First cost	$9,000/km	$25,000/km
Maintenance	$200/km/yr	$300/km/yr

Required:

1. Develop the cash flow diagram for both alternatives.

2. Apply the annual analysis.

3. Which one should be considered?

Answer 1

Annual Anlaysis
1st Route
Lenghth	15KM
First Cost	9,000$ Per KM
Maintenenace	200$ Per KM Per Year
Annual Property Taxes	9,000$*2%=
Yearly Power Loss	500$ Per KM
Total Cost of Route For 15 Years	(9000$*15 KM)+ (200$+500$)*15 KM *15 Years + (180$*15 Years)
	295200$
2ndt Route
Lenghth	5KM
First Cost	25,000$ Per KM
Maintenenace	300$ Per KM Per Year
Annual Property Taxes	25,000$*2%=
Yearly Power Loss	500$ Per KM
Total Cost of Route For 15 Years	(25,000$*5 KM)+ (300$+500$)*5 KM *15 Years + (500$*15 Years)
	192500$
The Second Route should be considered as Overall Cost of Route of 15 Years is less.