An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. In-house treatment will have an annual cost of $50,000 the first year, but process improvements will allow the annual cost to decline by $5,000 each subsequent year. As an alternative, an outside company will process the wastes for an initial cost of $32,400 and an annual fixed price of $30,400/year throughout the 13 year period. Either way, there is no need to treat the wastes after 13 years. Using the AW
An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. In-house treatment will have an annual cost of
$50,000
the first year, but process improvements will allow the annual cost to decline by
$5,000
each subsequent year. As an alternative, an outside company will process the wastes for an initial cost of
$32,400
and an annual fixed price of
$30,400/year
throughout the
13
year period. Either way, there is no need to treat the wastes after
13
years. Using the AW method, calculate the equivalent uniform annual cost (EUAC) of each alternative and determine how the waste should be processed. The company's MARR is
8%.
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8%
per year.
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