An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $30,000 the first year, but process improvements will allow the costs to decline by $3,000 each year. As an alternative, an outside company will process the wastes for the fixed
Calculate the annual worth.
Explanation of Solution
Time period is denoted by n and the interest is denoted by i. Annual worth (AWA) of A can be calculated as follows.
Annual worth is -$16,500.
Annual worth (AWB) of B can be calculated as follows.
Annual worth is -$16,500. Since the present worth of the cost is lower for option B, select the option B.
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