For a ten-year remediation purpose, the City of Avondale, Arizona is purchasing mitigation equipment for $500,000...

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For a ten-year remediation purpose, the City of Avondale, Arizona is purchasing mitigation equipment for $500,000 to pump ground water that will remove contamination and make it potable for irrigation purposes. At the end of the ten-years, it is believed that the contamination in the ground water will be removed to where the City will need to spend $125,000 to remove the pumping equipment, and another $875,000 in reclamation costs to make the site around the pump suitable for future economic development. These costs are in addition to the initial pumping system costs. During the reclamation period, agricultural interests near the pumping site are willing to pay $150,000 annually for the potable water to offset their irrigation costs. Develop a present value answer using a 5% interest rate to determine whether this project is desirable. For a ten-year remediation purpose, the City of Avondale, Arizona is purchasing mitigation equipment for $500,000 to pump ground water that will remove contamination and make it potable for irrigation purposes. At the end of the ten-years, it is believed that the contamination in the ground water will be removed to where the City will need to spend $125,000 to remove the pumping equipment, and another $875,000 in reclamation costs to make the site around the pump suitable for future economic development. These costs are in addition to the initial pumping system costs. During the reclamation period, agricultural interests near the pumping site are willing to pay $150,000 annually for the potable water to offset their irrigation costs. Develop a present value answer using a 5% interest rate to determine whether this project is desirable.

Answer rating: 100% (QA)

To determine whether the project is desirable we need to calculate the net present value NPV of the ... View the full answer