Question

An environmental engineer wants to evaluate three different methods for disposing of nonhazardous chemical waste: land application, fluidized-bed incineration, and private disposal contract. Use the estimates below to help her determine the least annual cost possible at i = 9% per year on the basis of an annual worth evaluation.

	Land	Incineration	Contract
First Cost	$-490,000	$-630,000	0
AOC per Year	$-70,000	$-140,000	$-210,000
Salvage Value	$70,000	$280,000	0
Life	4 years	6 years	2 years

Answer 1

R = 9%

For land alternative:

PW = -490000 - 70000*(P/A, 9%, 4) + 70000*(P/F, 9%, 4)

PW = -490000 - 70000*3.240 + 70000*.7084

PW = -$667212

So,

AW = -667212*(A/P, 9%, 4) = -667212*.3087

AW = -$205968

For incineration alternative:

AW = (-630000 - 140000*(P/A, 9%, 6) + 280000*(P/F, 9%, 6))*(A/P, 9%, 6)

AW = (-630000 - 140000*4.486 + 280000*.5963)*.2229

AW = -$243201

For contract alternative:

AW = -$210000

In all the above three alternatives, AW of land alternative is most cost effective. So, land alternative should be selected.