Question

The City of San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 4 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 24 years, what is the present worth of the desalting option revenue at an interest rate of 8% per year? The present worth of the desalting option revenue at an interest rate of 8% per year is determined to be

Answer 1

Answer :

As per the question City of San Antonio is considering is consider for 50 year plan and opted for aquifer for desalting the water

The revenue generated in the year 1 to 3 from the aquifer =$4,100,000

From the 4th year to 24th year the revenue decreases by 10% per year each year

So the revenue or cash flow (From 4th year to 24th year) in current year = Cash flow of previous year – (Cash flow of previous year) x (10/100)