Question

San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million in year 7 and then declining production will decrease revenue by 10% each year. If the aquifer will be totally depleted in 20 years, what is the present worth of the desalting option at an interest rate of 6% per year?

Answer 1

Year 7 revenue = 4.1
From Year 8 to Year continues decrease of 10%
Time = 20 years

		A	B	C	D	E	F	G	H	I	J	K	L	M	N
1	Year	7	8	9	10	11	12	13	14	15	16	17	18	19	20
2	Revenue with 10 % decrease after year 7	4.10	3.69	3.32	2.99	2.69	2.42	2.18	1.96	1.76	1.59	1.43	1.29	1.16	1.04
3	Rate	6%
	Value at year 7	24.41	Uing excel formula = NPV(6%,B2:N2)+A3

PV of the above value =24.41/1.06^7 = 16.24

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