2. Economics
3. an electrical utility is experiencing a sharp power demand that...

# Question: an electrical utility is experiencing a sharp power demand that...

###### Question details

An electrical utility is experiencing a sharp power demand that continues to grow at a high rate in a certain local area.Two alternatives are under consideration. Each is designed to provide enough capacity during the next 25​ years, and both will consume the same amount of​ fuel, so fuel cost is not considered in the analysis.

•Alternative A. Increase the generating capacity now so that the ultimate demand can be met without additional expenditures later. An investment of ​$20 million would be​ required, and it is estimated that this plant facility would be in service for 25 years and have a salvage value of ​$0.9 million. The annual operating and maintenance costs​ (including income​ taxes) would be​$0.4 million. •Alternative B. Spend ​$19 million now and follow this expenditure with future additions during the 10th year and the 15th year. These additions would cost ​$23 million and ​$16 ​million, respectively. The facility would be sold 25 years from now with a salvage value of ​$1.6 million. The annual operating and maintenance costs​(including income​ taxes) will be ​$250,000 initially and will increase to ​$0.35 million after the second addition​ (from the 11th year to the 15th​ year) and to ​$0.45 million during the final 10 years.​ (Assume that these costs begin one year subsequent to the actual​ addition.) On the basis of the​ present-worth criterion, if the firm uses 12​% as a​ MARR, which alternative should be​ undertaken? Note​: Adopt incremental cost approach.

The present worth of Alternative A is \$________ million.​ (Round to one decimal​ place.)