Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 41

Midwest Power and Light operates 14 coal-fired power plants in several states around the United States. The company recently settled a lawsuit by agreeing to pay $60 million in mitigation costs related to acid rain. The settlement included $21 million to reduce emissions from barges and trucks in the Ohio River Valley, $24 million for projects to conserve energy and produce alternative energy, $3 million for Chesapeake Bay, $2 million for Shenandoah National Park, and $10 million to acquire ecologically sensitive lands in Appalachia. The question of how to distribute the money over time has been posed. Plan A involves spending $5 million now and the remaining $55 million equally over a 10-year period (that is, $5.5 million in each of years 1 through 10). Plan B requires expenditures of $5 million now, $25 million 2 years from now, and $30 million 7 years from now. Determine which plan is more economical on the basis of a present worth analysis over a 10-year period at an interest rate of 10% per year.