Question: Please solve for Alternative B because it's wrong An electrical utility is experiencing a sharp power demand that continues to grow at a high rate

 Please solve for Alternative B because it's wrong An electrical utility Please solve for Alternative B because it's wrong

An electrical utility is experiencing a sharp power demand that continues to grow at a high rate in a certain local area. Two alternatives are under consideration. Each is designed to provide enough capacity during the next 25 years, and both will consume the same amount of fuel, so fuel cost is not considered in the analysis. Alternative A. Increase the generating capacity now so that the ultimate demand can be met without additional expenditures later. An investment of $22 million would be required, and it is estimated that this plant facility would be in service for 25 years and have a salvage value of $0.9 million. The annual operating and maintenance costs (including income taxes) would be $0.5 million. Alternative B. Spend $19 million now and follow this expenditure with future additions during the 10th year and the 15th year. These additions would cost $22 million and $16 million, respectively. The facility would be sold 25 years from now with a salvage value of $1.1 million. The annual operating and maintenance costs (including income taxes) will be $250,000 initially and will increase to $0.35 million after the second addition (from the 11th year) and to $0.45 million during the final 10 years. (Assume that those costs begin one year subsequent to the actual addition.) On the basis of the present-worth criterion. If the firm uses 11% as a MARR, which alternative should be undertaken? Click the icon to view the interest factors for discrete compounding when i = 11% per year. The present worth of Alternative A is $ - 26.455 million. (Round to one decimal place.) The present worth of Alternative B is $ - 33.92 millon. (Round to one decimal place.)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!