The Public Service Board (PSB) awarded two con­tracts worth a combined $3.07 million to increase the depth of a retention basin and reconstruct a spillway that was severely damaged in a flood 2 years ago. The PSB president stated that, surpris­ingly, the bids were $1,150,000 lower than PSB engineers estimated. If the projects are assumed to have a 20-year life, what is the annual worth of the savings at an interest rate of 5% per year?

What will be an ideal response?


A = 1,150,000(A/P,5%,20)
= 1,150,000(0.08024)
= $92,276

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