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Homework answers / question archive / compare the cost of installing water pipe with city employees ( alternative A) versus contracting it out ( Alternative B)

compare the cost of installing water pipe with city employees ( alternative A) versus contracting it out ( Alternative B)

Economics

compare the cost of installing water pipe with city employees ( alternative A) versus contracting it out ( Alternative B). They need to lay 4000 lineal feet of pipe per month for 48 months. Use i=9% per year

Alternative A:

Buy equipment =$2,000,000 paid now

Resale of equipment at EMO 48 = 10% of purchase price

Equipment O & M, labor, Materials = $10/lineal foot for the first 12 months, increasing by $0.10/month for each

subsequent month

Alternative B

Contract the work for $25/lineal foot with no increases over the 48-month period.

find the Net Present Cost for each alternative and compare.

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