Question

An industrial coal-fired boiler for process steam is equipped with a 10-year-old electrostatic precipitator (ESP). Changes in coal quality have caused stack emissions to be in noncompliance with federal standards for particulate. Two mutually exclusive alternatives have been proposed to rectify this problem (doing nothing is not an option). New Baghouse: Capital investment $1,140,000, Annual operating expenses $73,200. New ESP: Capital Investment $992,500, Annual operating expenses $115,500. The life of both alternatives is 10 years, the effective tax rate is 40% and the after-tax MARR is 9%. Both alternatives qualify as seven-year MACRS (GDS) equipment. Make a recommendation regarding which alternative to select based on after-tax analysis using NPV.

Answer 1