Question

Oil from a specific type of marine microalgae can be converted into biodiesel that may serve as an alternate transportable fuel for automobiles and trucks. If lined ponds are used to grow the algae, the construction cost is $13 million and the M&O cost is estimated at $1.7 million per year. Alternatively, if long plastic tubes are used for growing the algae, the initial cost will be higher at $17 million, but less contamination will render the M&O cost lower at $0.5 million per year. At an interest rate of 11% per year and a 5-year project period, which system is better—ponds or tubes? Use a present worth analysis.

The present worth of lined ponds is $ ________million and that of plastic tubes is $ __________ million.

_____________ are used to grow algae.

Answer 1

Solution:-

NPW of lined ponds ($ Million) = 13 + 1.7 * P/A (11%,5)

                                                     = 14.7 * 3.696

                                                     = $54.33 Million

NPW of Plastic Tubes ($ Million) = 17 + .5 * P/A (11%,5)

                                                        = 17.5 * 3.696

                                                        = $64.68 Million

Hence, The present cost of lined ponds is less, it should be selected.

Thus, The present worth of lined ponds is $54.33 million and that of plastic tubes is $64.68 million. Lined ponds are used to grow algae.