Southern Ontario is planning to build a new solar power station. The project will start in 2023 and is planned to take 3 years at a cost of $150 million per year.
After project completion, the cost of maintenance and repairs is expected to be $10 million for the first year, and to increase by $100,000 per year thereafter.
The salvage/scrap value of the station at the end of year 2060 is estimated to be $30 million. The new solar station is expected to save the city $45 million per year. Consider the present to be the end of 2016/beginning of 2017 and the interest rate to be 6%.
a) Draw a cash flow diagram for this project (from present till end of year 2060).
b) What is the Present Worth of the project?
c) What is the Future Worth of the project?
d) Is it a good investment for the city to make?