The pumping cost for delivering water from the Ohio River to Wheeling Steel for cooling hot rolled steel was $1.8 million for the first 4 years. An effective energy conservation program resulted in a reduced cost of $1.77 million in year 5, $1.74 million in year 6, and amounts decreasing by $30,000 each year through year 10. What is the present worth of the pumping costs in year 0 at an interest rate of 12% per year?
What will be an ideal response?
P = 1,800,000(P/A,12%,3) + [1,800,000(P/A,12%,7) –
30,000(P/G,12%,7)](P/F,12%,3)
= 1,800,000(2.4018) + [1,800,000(4.5638) – 30,000(11.6443)](0.7118)
= $9,921,910
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