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Pollution control equipment must be purchased to remove the suspended organic material from liquid being discharged from a vegetable packing plant. Two different pieces of
Pollution control equipment must be purchased to remove the suspended organic material from liquid being discharged from a vegetable packing plant. Two different pieces of equipment are available that would accomplish the task. A Filterco unit costs $7,200, will cost $1,300 per year to operate in the first year of operation, and has a five-year useful life. A Duro unit, on the other hand, costs $16,000, will cost $1,000 per year to operate in the first year of operation, but will have a 10 -year useful life. The Duro unit will also have a salvage value of $500. Equipment purchase costs are expected to rise at 6% per year due to inflation for the next 10 years. Therefore, when the Filterco unit needs to be replaced, the cost will be higher than the original purchase cost. Operating costs for both pieces of equipment are also expected to rise by 4% per year, due to increases in electricity costs. Assume you will borrow money to pay for the equipment, at a borrowing interest rate of 5% (which you should use as the discount rate). Calculate the NPW of each option. Which piece of pollution control equipment should be purchased? Show your calculations, and round each NPW to the nearest dollar
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