Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 17

Delcon Properties is a commercial developer of shopping centers and malls in various places around the country. The company needs to analyze the economic feasibility of rainwater drains in a 60-acre area that it plans to develop. Since the development won't be started for 3 years, this large open space will be subject to damage from heavy thunderstorms that cause soil erosion and heavy rutting. If no drains are installed, the cost of refilling and grading the washed out area is expected to be $1500 per thunderstorm. Alternatively, a temporary corrugated steel drainage pipe could be installed that will prevent the soil erosion. The cost of the pipe will be $3 per foot for the total length of 7000 feet required. Some of the pipe will be salvageable for $4000 at the end of the 3-year period between now and when the construction begins. Assuming that thunderstorms occur regularly at 3-month intervals, starting 3 months from now, which alternative should be selected on the basis of a present worth comparison using an interest rate of 4% per quarter