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San Antonio is considering various options for providing water in its 50-year plan, including desalting. One...

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?

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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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