**Problem Description:**An oil refinery needs to treat waste liquids from a new process before discharging them into a stream. There are two treatment options:1. **In-house Treatment:** - Initial annual cost: $20,000 in the first year. - Annual cost declines by $2,000 each subsequent year due to process improvements.2. **Outside Company Treatment:** - Initial cost: $13,300. - Fixed annual cost: $11,300 for 15 years.Neither option requires treatment beyond 15 years.**Objective:**Using the AW (Annual Worth) method, calculate the Equivalent Uniform Annual Cost (EUAC) for each treatment method. The chosen treatment should be the most economical. The company's Minimum Attractive Rate of Return (MARR) is 10%.**Instructions:**- Click the icon to access the interest and annuity table for discrete compounding with a MARR of 10% per year.**Calculations:**1. **EUAC for In-house Treatment:** - Enter the calculated EUAC and round to the nearest dollar as positive cash flow.2. **EUAC for Outside Treatment:** - Enter the calculated EUAC and round to the nearest dollar as positive cash flow.**Decision:**Select the most economical alternative:- ⬜ A. In-house treatment- ⬜ B. Outside treatmentThis exercise helps determine the financial viability of different treatment options using the EUAC, considering the company's financial parameters.

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

See similar textbooks

Related questions

Question

**Problem Description:**

An oil refinery needs to treat waste liquids from a new process before discharging them into a stream. There are two treatment options:

1. **In-house Treatment:**
- Initial annual cost: $20,000 in the first year.
- Annual cost declines by $2,000 each subsequent year due to process improvements.

2. **Outside Company Treatment:**
- Initial cost: $13,300.
- Fixed annual cost: $11,300 for 15 years.

Neither option requires treatment beyond 15 years.

**Objective:**

Using the AW (Annual Worth) method, calculate the Equivalent Uniform Annual Cost (EUAC) for each treatment method. The chosen treatment should be the most economical. The company's Minimum Attractive Rate of Return (MARR) is 10%.

**Instructions:**

- Click the icon to access the interest and annuity table for discrete compounding with a MARR of 10% per year.

**Calculations:**

1. **EUAC for In-house Treatment:**
- Enter the calculated EUAC and round to the nearest dollar as positive cash flow.

2. **EUAC for Outside Treatment:**
- Enter the calculated EUAC and round to the nearest dollar as positive cash flow.

**Decision:**

Select the most economical alternative:
- ⬜ A. In-house treatment
- ⬜ B. Outside treatment

This exercise helps determine the financial viability of different treatment options using the EUAC, considering the company's financial parameters.

Expert Solution

Step 1: Define EUAC

EUAC stands for "Equivalent Uniform Annual Cost." It is a financial concept used in capital budgeting and investment analysis to represent the annualized cost of an investment, project, or asset over its entire life while considering the time value of money. EUAC helps evaluate the economic feasibility of an investment by expressing its costs in terms of equal, annualized payments.

Step by step

Solved in 4 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions