Colorado is proud to have drinking quality tap water, and has voted to establish a fund to pay for annual maintenance and periodic renovations of the water distribution system forever.

The estimated cost of renovations will be $100,000 every 15 years, the first one being 15 years from now.

Annual maintenance costs are $10,000 per year.

The fund is expected to earn 6% interest per year.

A) How much must the city set aside now, to cover the periodic renovations and the annual maintenance costs forever?

B) There is an alternate project that will limit the life of the current water distribution system to 30 years from now (instead of forever). How much would be needed for the fund under the assumption that it will be needed only for the next 30 years?

Answer rating: 100% (QA)

A To calculate the amount the city must set aside now to cover the periodic renovations and annual maintenance costs forever we can use the perpetuity ... View the full answer