Problem $4$

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 $$5,000,$ will cost $$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 $$15,000,$ will cost $$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.$

Capital infrastructure costs are expected to rise at $8\%$ 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$).$ Based on NPW analysis, which piece of pollution control

equipment should be purchased? Show your calculations, and round each NPW to the nearest

dollar.