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The City of San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 5 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 21 years, what is the present worth of the desalting option revenue at an interest rate of 8% per year

Respuesta :

Answer:

The present worth of the desalting option revenue is 29,567,434.81 or $29.6 million.

Explanation:

Note: Calculation of the present worth of the desalting option revenue.

In the attached excel file, the revenue from year 6 to 21 is calculated using the following formula:

Revenue in the current year = Revenue in the previous year * (100% - Decreasing rate) ................... (1)

Where;

Decreasing rate = 10%

From the attached excel file, the present worth (in bold red color) of the desalting option revenue is 29,567,434.81 or $29.6 million.

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