Chapter 5, Problem 1P

To determine

Calculate the required revenue.

Explanation of Solution

Time period is denoted by n and interest rate is denoted by i. Required revenue (RR) can be calculated as follows.

$\begin{array}{c}\text{RR}={\text{Cost}}_{\text{Tube}}\left(\frac{\text{i}{\left(1+\text{i}\right)}^{\text{n}}}{{\left(1+\text{i}\right)}^{\text{n}}-1}\right)+{\text{Cost}}_{\text{Annual operating}}\\ =-\text{7,000,000}\left(\frac{\text{0}\text{.15}{\left(1+\text{0}\text{.15}\right)}^{\text{3}}}{{\left(1+\text{0}\text{.15}\right)}^{\text{3}}-1}\right)-860,000\\ =-3,925,860\end{array}$

Required revenue is $3,925,860 per year.