1. Theoretically, Merrimack College is trying to decide between two stormwater management systems to install by Lot M, the football stadium, and the athletic fields.
Option 1: A lovely system of rain gardens around the edges of the parking lot. This will cost $65,000 to construct, and will cost $5000 annually to maintain the gardens, including periodic cleanouts and replacing plants that have died. In addition, you are offered a $2000 grant to help offset the cost of the planting Option 2: A functional, but less attractive, detention pond. This will cost $60,000 to construct, and will cost $7000 to annually maintain – including dredging the pond for trash and treating the water for algal blooms.
1a. (6pts) Why might the college decide to treat stormwater at all? Give two distinctly different reasons.
1b. (6pts) At an interest rate of 4.5%, what is the capitalized cost for option 1?
1c. (6pts) Thinking only of economics, at an interest rate of 4.5%, which option should the college select? Show work.
1d. (6pts) The college may want to pick the rain garden option, regardless of the economics. Give two distinctly different reasons the college may prefer rain gardens.