A large water utility is planning to upgrade its SCADA system for controlling well pumps, booster pumps, and disinfection equipment so that everything can be centrally controlled. Phase I will reduce labor and travel costs by $28,000 per year. Phase II will reduce costs by an additional $20,000 per year, that is, $48,000. Phase I savings should occur in years 0, 1, 2, and 3 and phase II savings should occur in years 4 through 10. Let i = 8% per year.
(a) Using a spreadsheet determine the present worth of the upgraded system for years 1 to
10.
(b) The utility General Manager had hoped for a present worth of at least $400,000.
Determine the interest rate at which this would be correct.
What will be an ideal response?
(a) P = $298,542 using NPV function shown
(b) Use Goal Seek. With the savings estimated, only a 2.07% return is possible.
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