The town of Dry Gulch needs more water from Pine Creek. The town engineer has selected two plans for comparison: a gravity plan (divert water at a point 10 miles up Pine Creek and pipe it by gravity to the town) and a pumping plan (divert water at a point closer to town). The pumping plant would be built in two stages, with half-capacity installed initially and the other half installed 10 years later. Use an annual cash flow analysis to find which plan is more economical. The analysis will assume a 40-year life, 10% interest, and no salvage value.
Gravity Pumping
Initial Investment $2,800,000 $1,400,000
Additional Investment in None 200,000
10th year
Operation and Maintenance 10,000/yr 25,000/yr
Power Cost
Average first 10 years None 50,000/yr
Average next 30 years None 100,000/yr