Anne, the owner of A1- Auto services is considering switching from the petroleum based cleaner that the service station currently uses, to a new citrus based bio-degradable cleaner. Frank, the service station accountant has given her the following numbers:

A) The service station uses about 2000 lbs of the petroleum based cleaner, and the price of the cleaner is $5/lb. Since used petroleum based cleaner is considered a hazardous waste, it has to be disposed properly. The disposal costs are estimated at $1/lb. In addition, Frank estimates that the paperwork associated with hazardous waste handling costs $500 per year (this includes the annual permit fee and other expenses).

B) If the service station switches to the new citrus based cleaner, it would require 3000 lbs of the cleaner per year and the citrus based cleaner costs $3.50/lb. Since used citrus solvent is a non-hazardous waste, A-1 Service station can dispose it in the municipal sewer system. Anne estimates the cost of disposing in the municipal sewer system at $0.05/lb. However, the citrus-based solvent is available only in bulk containers. The service station has to install a new overhead tank to hold the solvent and distribution pipelines to various cleaning tanks. Frank estimates that the new system would cost $5000 initially (i.e. year 0) and has a life of 5 years

Anne uses a discount rate of 15% in her decision making. Assume a tax rate of 30% and depreciation is charged at 20% of the asset value for five years

Would you recommend switching to the new solvent? Why? Please show all your calculations clearly.