Question
Solve each case below: Clean-X company is considering the following options to come into compliance with its water quality permits. The only source of wastewater
Solve each case below:
Clean-X company is considering the following options to come into compliance with its water quality permits. The only source of wastewater is its cleaning operation.
(A) Build a new wastewater treatment plant: The plant requires a capital investment of $ 4000 in the year zero and has a life of 5 years. The operating costs of the wastewater treatment facility are $1000 per year.
(B) Use a different chemical for its cleaning operation, which results in annual cleaning costs of $2000, but does not require any new capital investment.
(C) Buy pollution permits from its neighboring company Designer-D. Clean-X would need 150 permits per year to be in compliance. Designer-D is willing to enter into a contract to sell 150 permits each year for next five years at a price of $10/permit, and an upfront fee of $1000 now (year 0).
**Assume discount rate of 15% and income tax rate is 30% (Capital costs are not tax deductible but depreciation, operating costs and permit costs are tax deductible. Assume straight-line depreciation over the life)
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