Virginia Natural Gas Company (VNGC) must provide a regulation and metering unit to a new subdivision near
Question:
Virginia Natural Gas Company (VNGC) must provide a regulation and metering unit to a new subdivision near Norfolk. They already own right-of-way and must now install the equipment at a cost of \(\$ 170,000\) with operating and maintenance costs of \(\$ 9,000\) per year. The useful life of the equipment is 25 years with no salvage value after that time. VNGC borrows 48 percent of their capital, and the rate is 8.5 percent over 25 years with uniform principal payments plus interest on the remaining principal. Tax depreciation follows MACRS-GDS (20), and financial depreciation is straight line in equal amounts over the full 25 years. The effective tax rate is 40 percent, and the WACC is 11 percent.
a. What is the revenue requirement for the third year?
b. What is the return on equity capital?
c. What is the present worth of the revenue requirements over the entire 25 years?
Step by Step Answer:
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt