A battery manufacturing plant has been ordered to cease discharging acidic liqui

Question

A battery manufacturing plant has been ordered to cease discharging acidic liquid waste containing mercury into the city sewer system. As a result, the firm must now adjust the pH & remove the mercury from its waste liquids. Three firms have provided quotations on the necessary equipment. An analysis of the quotations provided the following table of costs shown below. If the installation can be expected to last 20 years and the money is worth 7%, which equipment should be purchased? 1. Annuol Income from Mercun $2,000 2,200 Annual Opermting Cost alddor Instated Coat coveny onhaInstruinene $35,000 quletsivor Almedern $20,000 $2,000 SD 6100000 83500

Explanation / Answer

Since useful life is the same, we compute Present Worth (PW) of Net costs as follows.

Net cost = Annual operating cost - Annual income

Fosshill Instrument: $(8,000 - 2,000) = $6,000

Quicksilver: $(7,000 - 2,200) = $4,800

Almaden: $(2,000 - 3,500) = - $1,500

Therefore, PW of Net costs are:

PW, Fosshill ($) = 35,000 + 6,000 x P/A(7%, 20) - 20,000 x P/F(7%, 20)**

= 35,000 + 6,000 x 10.594 - 20,000 x 0.2584 = 35,000 + 63,564 - 5,168

= 93,396

**Since we are computing PW of net costs, we deduct present value of salvage value which is a cash inflow.

PW, Quicksilver ($) = 40,000 + 4,800 x P/A(7%, 20) = 40,000 + 4,800 x 10.594 = 40,000 + 50,851

= 90,851

PW, Almaden ($) = 100,000 - 1,500 x P/A(7%, 20) = 100,000 - 1,500 x 10.594 = 100,000 - 15,891

= 84,109

Since Almaden has lowest PW of net costs, this should be purchased.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.