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Question 15.18: Greenacres’ Sewage Pumping (revisited) Calculate the PW for ...

Greenacres′ Sewage Pumping (revisited)
Calculate the PW for Example 15.17 using an equivalent discount rate.

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Now:

(1 + r ) = 1.07 · 1.05/1.03 = 1.090777

and r = 9.0777%. Since this exceeds i = 8%, we let:

(1 + x) = (1 + r)/(1 + i ) = 1.090777/1.08

and x = 0.9978%. Now:

PW = [1.25M/1.08](F/A,.9978%,10) = 1.1574 · 10.4612 = $12.11M

If we wanted to analyze the dependence of the PW on any of the four geometric rates, this equation is much easier to use than a full spreadsheet table.

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