Question

Two plans are under consideration to provide certain facilities for a public utility. Each plan is designed to provide enough capacity during the next 18 years to take care of the expected growth of load during that period. Regardless of the plan chosen now, it is forecast that the facilities will be retired at the end of 18 years and replaced by a new plant of a different type. Plan I requires an initial investment of $50,000. This will be followed by an investment of $25,000 at the end of 9 years. During the first 9 years, annual disbursements will be $11,000; during the final 9 years, they will be $18,000. There will be a $10,000 salvage value at the end of the 18th year. Plan II requires an initial investment of $30,000. This will be followed by an investment of $30,000 at the end of 6 years and an investment of $20,000 at the end of 12 years. During the first 6 years, annual disbursements will be $8,000; during the second 6 years they will be $16,000; during the final 6 years they will be $25,000. There will be no salvage value at the end of the 18th year. Using an i of 9%, compare the present worth of the net

disbursements for the two plans and which plan will you recommend?

show allcalculations please

Answer 1