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 4 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 20 years, what is the present worth of the desalting option revenue at an interest rate of 6% per year?
What will be an ideal response?
P 3 = 4,100,000[1 – (0.90/1.06) 17 ]/(0.06 + 0.10)
= $24,037,964
P 0 = 4,100,000(P/A,6%,3) + P 3 (P/F,6%,3)
= 4,100,000(2.6730) + 24,037,964(0.8396)
= $31,141,574
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