Sales of bottled water in the United States totaled 34.0 gallons per person in 2014. Evian, a high-quality natural spring water, costs about 60¢ per bottle, while a local brand of purified municipal water may cost only 25¢ per bottle. On average, a local municipal water utility may provide drinkable tap water for $2.90 per 1000 gallons. If the average person drinks two bottles of water per day or uses 5 gallons per day to obtain the same amount of water from the tap, what are the present worth values per person for 1 year of drinking tap water versus bottled water using (a) Evian, and (b) local-brand bottled water? Use an interest rate of 6% per year, compounded monthly, and 30 days per month.

Question

What will be an ideal response?

Answer 1

Municipal water: Cost/month = -5(30)(2.90)/1000 = $0.435

PW = -0.435(P/A,0.5%,12)
= -0.435(11.6189)
= $-5.05

Evian bottled water: Cost/month = (2)(0.60)(30) = $36.00
PW = -36.00(P/A,0.5%,12)
= -36.00(11.6189)
= $-418.28


Local bottled water: Cost/month = (2)(0.25)(30) = $15.00
PW = -15.00(P/A,0.5%,12)
= -15.00(11.6189)
= $-174.28

Drinking bottled water varies from 34 to 83 times more expensive than drinking tap water.