A developer of a housing complex on an off-shore island is considering building
ID: 1206666 • Letter: A
Question
A developer of a housing complex on an off-shore island is considering building a pipeline connecting to the fresh water supply system of the government in replacing the existing desalination plant. The cost of fresh water produced from the desalination plant is about HK$ 10/m3 whereas the price of fresh water supplied from the government being HK$ 4.58/m3 . The cost of the pipeline is estimated to be HK$ 1,000,000. Assuming the daily use of water is 240 m3 calculate the number of years of payback of the pipeline if the interest rate is set at 10% p.a.
Explanation / Answer
Ans:
Given data:
The cost of fresh water produced from the desalination plant is = HK$ 10/m3
The price of fresh water supplied from the government = HK$ 4.58/m3
The cost of the pipeline is estimated = HK$ 1,000,000
The daily use of water = 240 m3
interest rate is set at 10% p.a
the number of years of payback =
The payback period is the measure of time that is normal before a venture will be returned as salary. At the point when looking at two or more ventures business directors and financial specialists will normally contrast the undertakings with see which one has the shorter . Ventures with longer are typically connected with higher danger.
Payback Period = Initial Investment / Average Annual Cash Flows
Payback Period: 88.323 years
Discounted Payback Period: 110,000.000 years
Return for the Cash Flow: -64.16% per year
Cash Flow Net Cash Flow Discounted Cash Flow Net Discounted Cash Flow Year 0 $-1,000,000.00 $-1,000,000.00 $-1,000,000.00 $-1,000,000.00 Year 1 $10.00 $-999,990.00 $9.09 $-999,990.91 Year 2 $11.00 $-999,979.00 $9.09 $-999,981.82 Year 3 $12.10 $-999,966.90 $9.09 $-999,972.73 Year 4 $13.31 $-999,953.59 $9.09 $-999,963.64 Year 5 $14.64 $-999,938.95 $9.09 $-999,954.55 Year 6 $16.11 $-999,922.84 $9.09 $-999,945.45 Year 7 $17.72 $-999,905.13 $9.09 $-999,936.36 Year 8 $19.49 $-999,885.64 $9.09 $-999,927.27 Year 9 $21.44 $-999,864.21 $9.09 $-999,918.18 Year 10 $23.58 $-999,840.63 $9.09 $-999,909.09Related Questions
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