China spends an estimated $100,000 per year on cloud seeding efforts which inclu

Question

China spends an estimated $100,000 per year on cloud seeding efforts which include using anti aircraftguns and rocket launchers to fill the sky with silver iodide. In the United States, utilities that run hydroelectric dams are among the most active cloud seeders because they believe it is a cost-effective way to increase limited water supplies by 10% or more. If the yields of cash crops will increase by 4% per year for the next 3 years because of extra irrigation water captured behind dams during cloud seeding, what is the future worth (in year 3) of the extra value of the cash crops? Assume the interest rate is 10% per year and the value of the cash crops without the extra irrigation water would be $600,000 per year.

Explanation / Answer

Information provided in the question is:

a. Value of cash crops without extra irrigation water = $600,000 per year.

b. Crop yield increase = 4%

c. Interest rate = 10%

d. Time period = 3 years.

Solution:

Future value of the crop at 4% increase in 3 years = PV(1=i)n

=> 600,000(1=0.04)3

= $674,918.4

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