You have to advise the mayor how best to proceed with theconstruction of a 200,000 km^3 water supply reservoir. Since only120,000 km^3 of storage is required for the first 20 years, analternative to building the full capacity now is to build thereservoir in 2 stages. The first stage would have a capacity of120,000 km^3. Stage 2 would add an additional capacity of 80,000km3 20 years from now by increasing the height of the reservoir.Estimated costs are:
The reservoir lasts forever. The annual effective MARR is 7%.Explain how to choose between the 2 alternatives. Please includecash flow diagram as well and a clear explanation.