Acity government is considering two types of town-dump sanitary systems. design a requires an initial outlay of $405 comma 000 with annual operating and maintenance costs of $51 comma 000 for the next 14 years; design b calls for an investment of $251 comma 000 with annual operating and maintenance costs of $89 comma 000 per year for the next 14 years. fee collections from the residents would again be $95 comma 000 per year. the interest rate is 7%, and no salvage value is associated with either system.

Desing A is a better deal as the equivalent annual cost is lower than desing B

Anywa, bot desing cost are above the city collections thus, it cannot afford the sanitary systems unless it raises taxes

Explanation:

Desing A

F0 405,000

operating and maintenance cost 51,000 for 14 years

Present value of the operating and maintenance cost:

C= $ 51,000.00

time =14 years

rate= 0.07

PV$446,018.8673

net worth: $ 851,081.87

equivalent annual cost:

PV851,082

time14

rate0.07

C  $ 97,316.904

Desing B

F0 251,000

operating and maintenance cost 89,000 for 14 years

C89,000.00

time14

rate0.07

PV$778,346.6507

net worth: $ 1,029,346.65

equivalent annual cost:

C  $ 117,700.580

a) both were commissioned explorers

answer; intensive use of a sales force and is relatively costly;