A water district is experiencing water shortages, and must seek additional groundwater. The district is considering two alternatives, as follows:

a. Drill a new well. The new well is expected to last 20 years, with the following cash flows

initial cost of $2,000,000
net cash flows in year 1 (the value of water produced, minus operating costs for the well) are 300,000. This amount is expected to decline at a rate of 3% per year over the life of the project, as the well yield declines.

Find NPV, PI, IRR and MIRR for each piano above. For NPV and PI, assume the required rate

b. Rehabilitate the old well, then drill a new well 5 years later.

Initial cost is $500,000
Net cash flows in years 1 through 5 start at 180,000, declining at a rate of 6% per year. At time 5, a new well will be installed with costs and cash flows as in choice a above. these projects, taken together, will be 25 years.

The total life of

The district's cost of capital is 8%. Find the equivalent annual return of these options (similar to equivalent annual cost) Which course of action should the district take?

Answer rating: 100% (QA)

Find the equivalent annual return of these options similar to equivalent annual cost ANSWER This question is asking for several different types of analysis For each option we need to find the net pres... View the full answer