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 $20,000 thefirst year, but process improvements will allow the annual cost to decline by $2,000 each subsequent year. As an alternative, an outside company will process the wastes for an initialcost of $16,700 and an annual fixed price of $14,700/year throughout the 10 year period. Either way, there is no need to treat the wastes after 10 years. Using the AW method, calculatethe equivalent uniform annual cost (EUAC) of each alternative and determine how the waste should be processed. The company's MARR is 8%.Click the icon to view the interest and annuity table for discrete compounding when the MARR is 8% per year.The EUAC for in-house treatment is $ (Round to the nearest dollar as positive cash flow.)The EUAC for outside treatment is $(Round to the nearest dollar as positive cash flow.)The most economical alternative isOA in-house treatmentOB. outside treatment

Answered: An oil refinery finds that it is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 $20,000 the
first year, but process improvements will allow the annual cost to decline by $2,000 each subsequent year. As an alternative, an outside company will process the wastes for an initial
cost of $16,700 and an annual fixed price of $14,700/year throughout the 10 year period. Either way, there is no need to treat the wastes after 10 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%.
Click the icon to view the interest and annuity table for discrete compounding when the MARR is 8% per year.
The EUAC for in-house treatment is $ (Round to the nearest dollar as positive cash flow.)
The EUAC for outside treatment is $(Round to the nearest dollar as positive cash flow.)
The most economical alternative is
OA in-house treatment
OB. outside treatment

Expert Solution

Step 1

The first-year cost of waste treatment for an in-house alternative is $20,000 and then the annual cost declines by $2000 each subsequent year.

As an alternative waste treatment, out-house treatment has first cost $16,700 and an annual fixed charge $14,700.

To find the EUAC of in-house treatment, a uniform gradient factor will be used and to convert the first cost of out-house treatment into the equal annual cost for 10 years, a capital recovery factor will be used.

MARR =8%

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