A waste-holding lagoon situated near the main plant receives sludge daily. When the lagoon is full, it
Question:
A waste-holding lagoon situated near the main plant receives sludge daily. When the lagoon is full, it is necessary to remove the sludge to a site located 8.2 kilometers from the main plant. Currently, when the lagoon is full, the sludge is removed by pump into a tank truck and hauled away. This process requires the use of a portable pump that initially costs $800 and has an 8-year life. The company pays a contract individual to operate the pump and oversee environmental and safety factors at a rate of $100 per day, plus the truck and driver must be rented for $200 per day. The company has the option to install a pump and pipeline to the remote site. The pump would have an initial cost of $1600 and a life of 10 years and will cost $3 per day to operate. The company's MARR is 10% per year.
(a) If the pipeline will cost $12 per meter to construct and will have a 10-year life, how many days per year must the lagoon require pumping to justify construction of the pipeline?
(b) If the company expects to pump the lagoon once per week every week of the year, how much money can it afford to spend now on the 10-year life pipeline to just break even?
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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