A large water utility is planning to upgrade its SCADA system for controlling well pumps, booster pumps, and disinfection equipment for centralized monitoring and control. 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. If phase I savings occur in years 0, 1, 2, and 3 and phase II savings occur in years 4 through 10, what is the present worth of the upgraded system in years 1 to 10 at an interest rate of 8% per year?
What will be an ideal response?
P = 28,000 + 28,000(P/A,8%,3) + 48,000(P/A,8%,7)(P/F,8%,3)
= 28,000 + 28,000(2.5771) + 48,000(5.2064)(0.7938)
= $298,535
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