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 $1.8 million per year. Alternatively, if long plastic tubes are used for growing the algae, the initial cost will be higher at $25 million, but less contamination will render the M&O cost lower at $0.3 million per year. At an interest rate of 15% 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 $ and that of plastic tubes is $ . are used to grow algae.

Answer 1

Solution:-

PW, Lined Ponds ($ Million) = 13 + 1.8 x P/A (15%, 5)

                                             = 13 + 1.8 x 3.357**

                                             = 13 + 6.0426

                                             = 19.0426

PW, Plastic Tubes ($ Million) = 25 + 0.3 x P/A (15%, 5)

                                              = 25 + 0.3 x 3.357**

                                              = 25 + 1.0071

                                               = 26.0071

Since PW of lower for Lined Ponds, this should be used.