Standby power for pumps at water distribution booster stations can be provided b

Question

Standby power for pumps at water distribution booster stations can be provided by either gasolineor diesel-powered engines. The estimates for the gasoline engines are as follows: First cost, S M&O;, $ per year Salvage value, $ Life,years Gasollne -150,000 -41,000 23,000 15 If the incremental PVV-based ROR equation associated with (Diesel-Gasoline) is 0 =-40,000 + 11,000(PAAi*, 15) + 16,000(PFA", 15), the first cost of the diesel engine is closest to: (a) -190,000 (b)-110,000 (c)-60,000 ( )-40,000

Explanation / Answer

Given incremental initial cash outflow Diesel-Gasoline= -40000

That means cash outflow of diesel is 40000 more than of the Gasoline

Intial outflow of gasoline= 150000

Then initial outflow of diesel= 150000+40000= 190000

Reconciliation:

Outflow of diesel= -190000

Outflow of Gasoline= -150000

Diesel-Gasoline= -190000-(-150000)= -40000

Hence option a. is correct

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