The city of Carlsbad in California is considering building a $300 million water-

Question

The city of Carlsbad in California is considering building a $300 million water-desalination plant. The facility would be the largest in the Western Hemisphere, producing 50 million gallons of drinking water a day-enough to supply about 100.000 homes This plant, which uses improved membranes and pumping system to bring down the energy cost to $1.10 in electricity to produce 1.000 gallons of water. Suppose the desalination plane is fully operational and you expect to operate it continuously for 20 years, with an estimated salvage value of $20 million. The operating and maintenance costs (excluding the energy cost) amount to $15 million the first year and will increase at a rate of 3% each year. If the city, plans to sell the water for about $950 per acre-foot. (an acre-foot is 325.851 gallons-enough water for t four people per year.). can it recover the capital cost p and all other operating costs? Assume the city's interest rate for this water project is known to be 6%.

Explanation / Answer

yes it can be recover the capital cost as well as it can get the minimum required rate of return

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