A Public Utility owns and operates a Power Plant, intended to be online indefinitely, needs replacing...

  

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A Public Utility owns and operates a Power Plant, intended to be online indefinitely, needs replacing the old Power Generator with a new one. The Utility cost of money availability from the money market is 8.3%, however a public auction of Bonds they recently held indicated that they could sell bonds for an interest of 3.5%. The Utility therefore decides to finance the entire cost of the new Power Generator through the sale of Bonds with the following parameters: ✓ Total Face Value equal to the price of the new Power Generator ✓ Interest 3.5% ✓ Maturity at 15 years ✓ Coupons.every 6 months The Utility issues a Request For Proposal (RFP) to several qualified suppliers of Power Generators. Three suppliers submit their proposals with the following terms: Proposal 1 Proposal 2 Proposal 3 Price 200,000 250,000 300,000 Generator Useful Life (yrş) 30 35 40 All proposed Power Generators are guaranteed to perform at the level required. cs Scanned with CamScanner Further, the Utility estimates that each proposed Power Generator will incur yearly O&M costs as follows: Generator of Proposal 1 Generator of Proposal 2 Generator of Proposal 3 O&M first year 4,000 5,000 6,000 Gradient per year 80 100 120 The Utility also estimates that at the end the useful life, the selected Power Generator can be sold as scrap for 7% of its original price. Use Annual Cash Flow Analysis technique to identify which Proposalshould the Municipality accept. cs Scanned with CamScanner A Public Utility owns and operates a Power Plant, intended to be online indefinitely, needs replacing the old Power Generator with a new one. The Utility cost of money availability from the money market is 8.3%, however a public auction of Bonds they recently held indicated that they could sell bonds for an interest of 3.5%. The Utility therefore decides to finance the entire cost of the new Power Generator through the sale of Bonds with the following parameters: ✓ Total Face Value equal to the price of the new Power Generator ✓ Interest 3.5% ✓ Maturity at 15 years ✓ Coupons.every 6 months The Utility issues a Request For Proposal (RFP) to several qualified suppliers of Power Generators. Three suppliers submit their proposals with the following terms: Proposal 1 Proposal 2 Proposal 3 Price 200,000 250,000 300,000 Generator Useful Life (yrş) 30 35 40 All proposed Power Generators are guaranteed to perform at the level required. cs Scanned with CamScanner Further, the Utility estimates that each proposed Power Generator will incur yearly O&M costs as follows: Generator of Proposal 1 Generator of Proposal 2 Generator of Proposal 3 O&M first year 4,000 5,000 6,000 Gradient per year 80 100 120 The Utility also estimates that at the end the useful life, the selected Power Generator can be sold as scrap for 7% of its original price. Use Annual Cash Flow Analysis technique to identify which Proposalshould the Municipality accept. cs Scanned with CamScanner

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In the question the Gradient given is assumed a negative gradient Because if it is a posit... View the full answer