As groundwater wells age, they sometimes begin to pump sand (and they become known as sanders), and

Question:

As groundwater wells age, they sometimes begin to pump sand (and they become known as "sanders"), and this can cause damage to downstream desalting equipment. This situation can be dealt with by drilling a new well at a cost of $1,000,000 or by installing a tank and self-cleaning screen ahead of the desalting equipment. The tank and screen will cost $230,000 to install and $61,000 per year to operate and maintain. A new well will have a pump that is more efficient than the old one, and it will require almost no maintenance, so its operating cost will be only $18,000 per year. If the salvage values are estimated at 10% of the first cost, use a present worth relation to

(a) Calculate the incremental rate of return

(b) Determine which alternative is better at a MARR of 6% per year over a 20-year study period.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
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...