Question

An industry is currently discharging 25,000 kg per year of a toxic chemical to a POTW. Under new local limits, the company will have to reduce this to 5,000 kg per year or pay a new fee of $5.00/kg of the chemical above the limit. They can install a pre-treatment system that will provide the required discharge reduction at a capital cost of $60,000 and an annual operating cost of $15,000. A second alternative is to implement certain pollution prevention (P2) measures that will cost $130,000 to install and $18,000 per year to operate, but will result in a savings to $25,000 per year in process chemicals. Assuming a 10% discount rate and a five year period for the project, should the industry pay the sewer user fee, install the pre-treatment system, or initiate the P2 projects? Ignore the effects of inflation

Answer 1

Current discharge of the industry = 25,000 kg

Excess discharge above the specified limit = 20,000 kg

Cost of payment for excess discharge = $5 x 20,000 = $ 100,000

Pre-treatment system

Capital cost = $ 60,000

Annual operating cost = $ 15,000

Number of years = 5

Discount rate = 10%

Total cost of the pre-treatment system =

Pollution prevention measures

Capital cost = $ 130,000

Annual operating cost = $ 18,000

Annual savings = $ 25 000

Number of years = 5

Discount rate = 10% = i

Total cost =

(Here, we can use the present value annuity formula. We can use the same formula for the previous part as well)

We can see that the cheapest for the company is to pay the sewer user fee, as it costs onlt $100,000 as compared to the pre-treatment system that costs $116,862 and the P2 projects that cost $ 103,465.