(Environmental costs) Galveston Products produces a variety of chemicals that are used in an array of commercial applications. One popular product, a chemical solvent, contains two very caustic acids, A and B, which can pre¬ sent a very serious environmental hazard if not disposed of properly. For every ton of chemical produced, 500 pounds of acid A and 300 pounds of acid B are required. Because of inefficiencies in the present production process, 40 pounds of acid A and 20 pounds of acid B remain as waste from each ton of chemical manufactured. Because of impurities in the waste acids, they cannot be used in the production of future batches of product. The company incurs a cost of $2 per pound to dispose of the waste acid produced.

Recently, the company has become aware of new technology that re¬ duces the amount of waste acids produced. This technology would generate only 1 pound of acid A and 5 pounds of acid B as waste from each ton of chemical manufactured. Corporate management has estimated that the new technology could be acquired and installed at a cost of $500,000. The tech¬ nology would have a life expectancy of six years. The new technology would not otheiwise affect the cost of producing the chemical solvent,

a. Which environmental cost management strategy is Galveston Products considering in this example?

b. Why would the application of discounted cash flow methods (see Chap¬ ter 13) be appropriate to evaluate the new technology? LO.1