City engineers are considering three plans for municipal aqueduct tunnels. Each

Question

City engineers are considering three plans for municipal aqueduct tunnels. Each plan has a different service life and a different set of cost. The particulars are summarized in Table 2. The interest rate is 1 1%, compounded annually. b) i) Evaluate the three plans based on present worth amount (15 Marks) ii) Analyze and select the best option using the Present Worth Method of comparison. (4 Marks) Table 2 Plan 1 70,000 6,000 Plan 2 80,000 8,000 Plan 3 65,000 7,000 Description of item First cost (RM) Annual operation and maintenance cost (RM) Residual Value (RM) Economic service life (years) 8,500 16 5,000 9,000 15 14

Explanation / Answer

i)

Plan1

Present worth= First cost- Annual opertion and maintainence cost(P/A,11%,15)+5000(P/F,11%,15)

=70000-(6000*7.191)+(5000*0.2090)

= 27899

Plan 2

Present worth= First cost- Annual opertion and maintainence cost(P/A,11%,14)+5000(P/F,11%,14)

=80000-(8000*6.982)+(9000*0.2320)

= 26232

Plan 3

Present worth= First cost- Annual opertion and maintainence cost(P/A,11%,16)+5000(P/F,11%,16)

=65000-(7000*7.379)+(8500*0.1883)

= 14947.55

We will select plan 1 as the present worth is high with moderate investment as compared to plan 2 and 3

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