Midwest Power and Light operates 14 coal-fi red power plants in several states a
ID: 1208253 • Letter: M
Question
Midwest Power and Light operates 14 coal-fi red power plants in several states around the United States. The company recently settled a lawsuit by agreeing to pay $60 million in mitigation costs related to acid rain. The settlement included $21 million to reduce emissions from barges and trucks in the Ohio River Valley, $24 million for projects to conserve energy and produce alternative energy, $3 million for Chesapeake Bay, $2 million for Shenandoah National Park, and $10 million to acquire ecologically sensitive lands in Appalachia. The question of how' to distribute the money over time has been posed. Plan A involves spending $5 million now and the remaining $55 million equally over a 10-year period (that is, $5.5 million in each of years 1 through 10). Plan B requires expenditures of $5 million now, $25 million 2 years from now, and $30 million 7 years from now. Determine which plan is more economical on the basis of a present worth analysis over a 10-year period at an interest rate of 10% per year.Explanation / Answer
plan B would be more successful as you would be investing little amoun each year for the upliftment of the society overall. Moreover we would have to pay an interst rate of 10% each year . so with this plan B works more efficiantly.