PetroBucks operates a chemical facility. It emits air pollutants that impact the community. Assume that approximately 500,000 people living nearby are impacted, with an average cost or harm of $160 / year / person. For a $ 10,000,000 of investment, PetroBucks could install pollution control equipment that would reduce the impact to the community by 75%. It would cost about $500,000 per year to operate and maintain that equipment.
a) How long would it take for the benefits to the community to equal the cost of installing the equipment? (We are looking at capital cost of the equipment; for simplicity, do not bring in the operating costs here.) *HINT* it is less than a year
b) Once installed and operating, what is the benefit to the community each year for each dollar spend to operate and maintain this equipment?
The cost of installation = $10 million
Total benefits occur = 75% * 160 * 500000 = 120 * 500000 = 60 million
Total days in which the cost of installation will be covered = 10 million / 60 million = 0.166 year
= 0.166 * 365 days = 60.83 days
= Apx 61 days
Therefore it would take 61 days to start benefitting the community after equalling the cost of installation.
B) It would take $500,000 to be spent on maintainance which will benefit 500,000 people.
If simplified, The maintainance expene is $1 per person per year
saving of expenses that causes harm = 75% * 160 = 120
Therefore each person saves $ 119 every year for every dollar spent on a person every year.
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