Deck 16: Economic Analysis in the Service Sector

Question 1

September 2015, a 3.4.5 megawatt cooling, heating, and power (CHP) system was placed in into operation for Southeast Regional Hospital with 360 beds. The CHP system was part of a new 20,000 sq. ft. central utility plant that provided the 800,000 sq. ft. health-care facility with cooling, heating and power. By centralizing all of the utilities in one location, the hospital accrued significant energy savings, as well as improved maintenance efficiency. The financial facts related to the project are summarized as
• Installed cost: $2.5 million
• Annual energy cost savings: $786,000
• Annual O M costs: $233,000
• Project service life: 15 years
• Salvage value: $200,000
At an interest rate of 8%, what is the net savings per dollar invested

Answer 1

Net Savings is the unspent money from every month in the account. In a nutshell, it is considered as a measure of long-run profitability.
A central utility plant with 20,000 sq. ft. had placed with 360 beds for Southern Regional Hospital. It includes the installed cost which is $2.5 million, annual energy cost savings is $786,000, annual O M costs is $233,000, with the project service life of 15 years and salvage value is $200,000 with the rate of interest as 8%.
It is required to find out the net savings per dollar invested which can be calculated as:
where
B refers to present values of benefits
C refers to present values of costs
Here, B can be represented as shown below:
Where
The Present value of benefits will be calculated as:
Where A is annual savings and S is salvage value.
The Present value of costs will be calculated as:
Where, I represents equivalent capital expenditure and
represents equivalent annual operating costs and it is represented as:
can be calculated as:
Now, Net Savings can be calculated as:
Thus, Net savings per dollar invested will be

Question 2

The Federal Highway Administration predicts that by the year 2015, Americans will be spending 8.1 billion hours per year in traffic jams. Most traffic experts believe that adding and enlarging highway systems will not alleviate the problem. As a result, current research on traffic management is focusing on three areas: (I) the development of computerized dashboard navigational systems;(2) the development of roadside sensors and signals that monitor and help manage the flow of traffic; and (3) the development of automated steering and speed controls that might allow cars to drive themselves on certain stretches of highway.
In Los Angeles, perhaps the most traffic-congested city in the United States, a Texas Transportation Institute study found that traffic delays cost motorists $8 billion per year. But Los Angeles has already implemented a system of computerized traffic-signal controls that by some estimates has reduced travel lime by 13.2%, fuel consumption by 12.5%, and pollution by 10%. And between Santa Monica and downtown Los Angeles, testing of an electronic traffic and navigational system including highway sensors and cars with computerized dashboard maps is being sponsored by federal, state, and local governments and General Motors Corporation. This test program costs $40 million; to install it throughout Los Angeles could cost $2 billion.
On a national scale, the estimates for implementing "smart" roads and vehicles are even more staggering: It would cost $18 billion to build the highways, $4 billion per year to maintain and operate them, $1 billion for research and development of driver-information aids, and $2.5 billion for vehicle-conlroi devices. Advocates say the rewards far outweigh the costs.
(a) On a national scale, how would you identify the users' benefits and disbenefits for this type of public project
(b) On a national scale, what would be the sponsor's cost
(c) Suppose that the users net benefits grow at 3% per year and the sponsor's costs grow at 4% per year. Assuming a social discount rate of 10%, what would be the B/C ratio over a 20-year study period

Answer 2

NO ANSWER

Question 3

A city government is considering two types of town-dump sanitary systems. Design A requires an initial outlay of $400,000 with annual operating and maintenance costs of $50,000 for the next 15 years; design B calls for an investment of $300,000 with annual operating and maintenance costs of $80,000 per year for the next 15 years. Fee collections from the residents would again be $85,000 per year. The interest rate is 8%, and no salvage value is associated with either system.
(a) Using the benefit-cost ratio BC( i ) which system should be selected
(b) If a new design (design C), which requires an initial outlay of $350,000 and annual operating and maintenance costs of $65,000, is proposed, would your answer in part (a) change

Answer 3

The sixteenth chapter that is in the textbook has to do with various topics that engineers would encounter in the service sector. Selected topics that are covered here include the ability for one to price the service sector, evaluate investment projects in the health care industry, and conduct cost-benefit analyses and cost-effectiveness analyses.
For the problem that is provided to one here, we have a city which wants to purchase one of two (2) town-dump sanitary systems. The first one requires an initial outlay of $400,000.00 of initial costs with annual operating costs of $50,000.00 annually for the next 15 years. On the other hand, a second option has an investment of $300,000.00 with annual operating and maintenance costs of $80,000.00 per year for 15 years. Collections from fees for the city would be consistent for both options at an annual rate of $85,000.00.
Given that information, an interest rate of 8.00%, and no salvage value for either option, which system should be selected when using the BC ( i% ) ratio In a follow-up question, let's say that a third option comes to the forefront which has an initial cost of $350,000.00 and annual benefits of $65,000.00. Would the answer change
a) To begin the problem off, we need to determine which of the two (2) designs are optimal to choose from here. Note that when determining the net savings per dollar here, there are a couple of things that one would need to do in order to get to the desired result. The first thing that one would need to do is to find out the present worth of an annuity of the benefits and costs as well as the present worth of the initial amount of the asset sale (net of any salvage value). In this case, the initial investment is equivalent to what was mentioned in the text for both (due to no salvage value).
Beginning with the first two, one would need to apply the present worth of an annuity for all benefits realized ( B ) and the costs for the new system in place ( C' ). The formula shown below as an example will be calculated for the benefits of the situation for the first design (A). Note that a follow-up answer will be available for the costs shortly:
…… (1)
Where…
- P = present value of the sum of money,
- A = the annual cash flow amount for the sum of money,
- i = interest rate (which is unknown in this case), and
- n = number of terms that the money is for.
With the equation in hand, let's throw the numbers that are applicable to the situation. In this situation, it is important to note that one gets the factor values properly in their places here as one wrong move could yield bigger problems than what one would want to have. The calculations begin below:
The next step that one has to do here is to mosey on back to Appendix B in the latter part of the textbook. In this appendix, there are a number of factor value tables that one will need to use and become familiar with very quickly. In this situation, one would want to look at the fifth column for the first factor value here for
. We continue below with the applicable factor values applied to the equation:
P = $427,975.00
Thus, the present worth of the annual benefits that the government would realize with the new system in place is approximately $427,975.00. When this is done for the present worth of annual costs ( C' ) in this situation for the first design, this would result in a value of approximately $727,556.00.
So that one isn't too confused, it is best to now include the present worth values of the benefits and costs of the second design (B). All one would need to do is to wash, rinse, and repeat so to speak. When this is done, the present worth of the annual benefits that the government would realize with the new system in place is approximately $684,758.00 and the present worth of annual costs ( C' ) in this situation for the second design, this would result in a value of approximately $727,556.00.
The fun begins where one would need to determine which option is better to go with. Note that since the benefits for both are the same, one cannot use the BC ( i% ) ratio. However, one can do an incremental analysis because we can see if the ratio is below or above one. As an example here, one would want to use a modified version of the BC ( i% ) ratio formula to get the answer needed here. This is shown below for one to see:
…… (2)
Where…
- B = the present worth of benefits in the situation,
- C = the present worth of costs in the situation, and
- I = the present worth of initial costs to the situation at hand.
With the equation in hand, let's throw the numbers that are applicable to the situation. In this situation, it is important to note that the numbers one got above must be used here. Failure to put them in the wrong place may also cause some havoc as well:
BC' (0.08) A-B = 2.57 1.00
Thus, the incremental analysis which is between the first two (2) options show that the ratio achieved here is approximately 2.57. Since this is above the requirement of 1.00, one would reject Design B and choose Design A.
b) The second part of the problem that one would need to figure out here is when a third option is presented which has an initial cost that is in-between the two and lower annual benefits. The process that one did above would be executed again here.
To cut to the chase, the funny thing that happens here (though it will rarely be like this) is that the ratio achieved here is approximately 2.57 once again (after rounding takes place). Since this is above the requirement of 1.00, one would reject Design C and once again choose Design A

Question 4

The City of Boston is considering adding new buses for its current mass-transit system that links from the Hartsfield International Airport to major city destinations on nonstop basis. The total investment package is worth $8 million and expected to last 10 years with a $750,000 salvage value. The annual operating and maintenance costs for buses would be $2 million during the first year, and will grow by 5% each year over the previous year thereafter. If the system is used for 600,000 trips per year, what would be the fair price to charge per trip to have a profitability index of 1 Assume that the City of Boston uses 5% interest rate for any city sponsored projects.

Question 5

A local county is considering purchasing some dump trucks for the trash pickups. Each truck will cost $55,000 and have an operating and maintenance cost that stalls at $ 18,000 during the first year and increases by $3,000 per year thereafter. Assume the salvage value is $12,000 at the end of 5 years and the interest rate is 10%. To meet the equivalent annual cost of owning and operating each truck over 5-year planning horizon, what is the required annual trash collection fees

Question 6

Consider three investment projects, A1, A2, and A3. Each project has the same service life, and the present worth of each component value (B, I, and C ) is computed at 10% as follows:
TABLE 8
(a) If all three projects are independent, which projects would be selected based on BC ( i )
(b) If the three projects are mutually exclusive, which project would be the best alternative Show the sequence of calculations that would be required to produce the correct results. Use the B/C ratio on incremental investment.

Question 7

The U.S. government is considering building apartments for government employees working in a foreign country and living in locally owned housing. A comparison of two possible buildings is given in Table.
TABLE 9
Assume the salvage or sale value of the apartments to be 60% of the first investment. Use 10% and a 20-year study period to compute the B/C ratio on incremental investment, and make a recommendation. (Assume no do-nothing alternative.)

Question 8

The U.S. Department of Interior is planning to build a dam and construct a hydroelectric power plant. In addition to producing electric power, this project will provide flood control, irrigation, and recreational benefits. The estimated benefits and costs expected to be derived from the three alternatives under consideration arc listed as follows:
The interest rate is 5%, and the life of each project is estimated to be 40 years.
(a) Find the benefit-cost ratio for each alternative.
(b) Select the best alternative, according to BC( i ).
(c) Select the best alternative, according to PI( i ).

Question 9

Three public-investment alternatives with the same service life are available: A1, A2, and A3. Their respective total benefits, costs, and first costs are given in present worth as follows:
TABLE P16.1 0
Assuming no do-nothing alternative, which project would you select on the basis of the benefit-cost ratio BC( i )on incremental investment

Question 10

A local city that operates automobile parking facilities is evaluating a proposal that it erect and operate a structure for parking in the city's downtown area. Three designs for a facility to be built on available sites have been identified in Table (all dollar figures are in thousands).
At the end of the estimated service life, whichever facility had been constructed would be torn down, and the land would be sold. It is estimated that the proceeds from the resale of the land will be equal to the cost of clearing the site. If the city's interest rate is known to be 10%, which design alternative would be selected on the basis of the benefit-cost criterion
TABLE P16.11

Question 11

The state of Michigan is considering a bill that would ban the use of road salt on highways and bridges dining icy conditions. Road salt is known to be toxic, costly, corrosive, and caustic. Chevron Chemical Company produces a calcium magnesium acetate (CMA) deicer and sells it for $650 a ton as Ice-B-Gon. Road salts, by contrast, sold for an average of $54 a ton. Michigan needs about 500,000 tons of road salt each year. (The state spent $27 million on road salt annually.) Chevron estimates that each ton of salt on the road costs $650 in highway corrosion, $525 in rust on vehicles, $150 in corrosion to utility lines, and $100 in damages to water supplies, for a total of $1,425. Unknown salt damage to vegetation and soil surrounding areas of highways has occurred. Michigan would ban road salt (at least on expensive steel bridges or near sensitive lakes) if state studies support Chevron's cost claims.
(a) What would be the users' benefits and sponsor's costs if a complete ban on road salt were imposed in Michigan
(b) How would you go about determining the salt damages (in dollars) to vegetation and soil

Question 12

The federal government is planning a hydroelectric project for a river basin. In addition to producing electric power, this project will provide flood control, irrigation, and recreational benefits. The estimated benefits and costs expected to be derived from the three alternatives under consideration are listed in Table.
The interest rate is 10%, and the life of each of the projects is estimated to be 50 years.
(a) Find the benefit-cost ratio for each alternative.
(b) Select the best alternative on the basis of BC( i )
TABLE 12

Question 13

Fast growth in the population of the city of Orlando and in surrounding counties-Orange County in particular-has resulted in insurmountable traffic congestion. The county has few places to turn for extra money for road improvements-except new taxes. County officials have said that the money they receive from current taxes is insufficient to widen overcrowded roads, improve roads that don't meet modern standards, and pave dirt roads. State residents now pay 12 cents in taxes on every gallon of gas. Four cents of that goes to the federal government, 4 cents to the state, 3 cents to the county in which the tax is collected, and 1 cent to the cities. The county commissioner has suggested that the county get the money by tacking an extra penny-a-gallon tax onto gasoline, bringing the total federal and state gas tax to 13 cents a gallon. This new tax would add about $2.6 million a year to the road-construction budget. The extra money would have a significant impact. With the additional revenue, the county could sell a $24 million bond issue. It would then have the option of spreading that amount among many smaller projects or concentrating on a major project.
Assuming that voters would approve a higher gas tax, county engineers were asked to prepare a priority list outlining which roads would be improved with the extra money. The road engineers also computed the possible public benefits associated with each road-construction project; they accounted for a possible reduction in travel time, a reduction in the accident rate, land appreciation, and savings in the operating costs of vehicles. Table is a list of the projects and their characteristics.
TABLE 1
Assume a 20-year planning horizon and an interest rate of 10%. Which projects would be considered for funding in parts (a) and (b)
(a) Due to political pressure, each district will have the same amount of funding, say, $6 million.
(b) The funding will be based on tourist traffic volumes. Districts I and II combined will get $15 million, and Districts III and IV combined will get $9 million. It is desirable to have at least one four-lane project from each district.

Question 14

Two different routes are under consideration for a new interstate highway:
TABLE 13
For either route, the volume of traffic will be 400,000 cars per year. These cars are assumed to operate at $0.25 per mile. Assume a 40-year life for each road and an interest rate of 10%. Determine which route should be selected.

Question 15

A public school system in Ohio is considering the adoption of a four-day school week as opposed to the current five-day school week in high schools. The community is hesitant about the plan, but the superintendent of the school system envisions many benefits associated with the four-day system, Wednesday being the "day off.'' The following pros and cons have been cited.
• Experiments with the four-day system indicate that the "day off' in the middle of the week will cut down on both teacher and pupil absences.
• The longer hours on school days will require increased attention spans, which is not an appropriate expectation for younger children.
• The reduction in costs to the federal government should be substantial, as the number of lunches served would be cut by approximately 20%.
• The stale bases its expenditures on its local school systems largely on the average number of pupils attending school in the system. Since the number of absences will decrease, state expenditures on local systems should increase.
• Older students might want to work on Wednesdays. Unemployment is a problem in this region, however, and any influx of new job seekers could aggravate an existing problem. Community centers, libraries, and other public areas also may experience increased usage on Wednesdays.
• Parents who provide transportation for their children will see a savings in fuel costs. Primarily, only those parents whose children live less than 2 miles from the school would be involved. Children living more than 2 miles from school are eligible for free transportation provided by the local government.
• Decreases in both public and private transportation should result in fuel conservation, decreased pollution, and less wear on the roads. Traffic congestion should ease on Wednesdays in areas where congestion caused by school traffic is a problem.
• Working parents will be forced to make child-care arrangements (and possibly payments) for one weekday per week.
• Students will benefit from wasting less time driving to and from school; Wednesdays will be available for study, thus taking the heavy demand off most nights. Bused students will spend far less time per week waiting for buses.
• The local school board should see some case in funding problems. The two areas most greatly affected are the transportation system and nutritional programs.
(a) For this type of public study, what do you identify as the users' benefits and disbenefits
(b) What items would be considered as the sponsor's costs
(c) Discuss any other benefits or costs associated with the four-day school week.

Question 16

The government is considering undertaking four projects. These projects are mutually exclusive, and the estimated present worth of their costs and the present worth of their benefits are shown in millions of dollars in Table. All of the projects have the same duration.
TABLE
Assuming no do-nothing alternative, which alternative would you select Justify your choice by using a benefit-cost (BC( i ) analysis on incremental investment.

Question 17

The City of Portland Sanitation Department is responsible for the collection and disposal of all solid waste within the city limits. The city must collect and dispose of an average of 300 tons of garbage each day. The city is considering ways to improve the current solid-waste collection and disposal system.
• The current system uses Dempster Dumpmaster frontend loaders for collection and incineration or landfill for disposal. Each collecting vehicle has a load capacity of 10 tons (or 24 cubic yards) and dumping is automatic. The incinerator in use was manufactured in 1942 and was designed to incinerate 150 tons per 24 hours. A natural-gas afterburner has been added in an effort to reduce air pollution. However, the incinerator still does not meet state air-pollution requirements, and it is operating under a permit from the Oregon State Air and Water Pollution Control Board. Prison-farm labor is used for the operation of the incinerator. Because the capacity of the incinerator is relatively low, some trash is not incinerated, but it is taken to the city landfill. The trash landfill is located approximately 11 miles, and the incinerator approximately 5 miles, from the center of the city. The mileage and costs in person-hours for delivery to the disposal sites are excessive; a high percentage of empty vehicle miles and person-hours is required, because separate methods of disposal are used and the destination sites are remote from the collection areas. The operating cost for the present system is $905,400, including $624,635 to operate the prison-farm incinerator, $222,928 to operate the existing landfill, and $57,837 to maintain the current incinerator.
• The proposed system locates a number of portable incinerators, each with 100-ton-per-day capacity for the collection and disposal of refuse waste collected for three designated areas within the city. Collection vehicles will also be staged at these incineration-disposal sites together with the plant and support facilities that are required for incineration, fueling and washing of the vehicles, a support building for stores, and shower and locker rooms for collection and site crew personnel. The pickup-and-collection procedure remains essentially the same as in the existing system. The disposal-staging sites, however, are located strategically in the city on the basis of the volume and location of wastes collected, thus eliminating long hauls and reducing the number of miles the collection vehicles must retravel from pickup to disposal site.
Four variations of the proposed system are being considered, containing one, two, three, and four incinerator-staging areas, respectively. The type of incinerator is a modular prepackaged unit that can be installed at several sites in the city. Such units exceed all state and federal standards for exhaust emissions. The city of Portland needs 24 units, each with a rated capacity of 12.5 tons of garbage per 24 hours. The price per unit is $137,600, which means a capital investment of about $3,304,000. The plant facilities, such as housing and foundation, were estimated to cost $200,000 per facility based on a plan incorporating four incinerator plants strategically located around the city. Each plant would house eight units and be capable of handling 100 tons of garbage per day. Additional plant features, such as landscaping, were estimated to cost $60,000 for site 1 and other sites cost some additional expenses.
The annual operating cost of the proposed system would vary according to the type of system configuration. It takes about 1.5 to 1.7 million cubic feet (MCF) of fuel to incinerate 1 ton of garbage. The conservative 1.7-MCF figure was used for total cost. This means a fuel cost of $4.25 per ton of garbage at a cost of $2.50 per MCF. Electric requirements at each plant will be 230 kW per day, which means a $0.48-per-ton cost for electricity if the plant is operating at full capacity. The maintenance cost of each plant was estimated to be $1.19 per ton. Since three plants will require fewer transportation miles, it is necessary to consider the savings accruing from this operating advantage. Three plant locations will save 6.14 miles per truck per day on the average. At an estimated cost of $0.30 per mile, this would mean that an annual savings of $6,750 is realized on minimum trips to the landfill disposer for a total annual savings in transportation of $15,300. Savings in labor are also realized because of the shorter routes, which permit more pickups during the day. The annual savings from this source are $103,500. Table summarizes all costs, in thousands of dollars, associated with the present and proposed systems.
A bond will be issued to provide the necessary capital investment at an interest rate of 8% with a maturity date 20 years in the future. The proposed systems are expected to last 20 years with negligible salvage values. If the current system is to be retained, the annual O M costs would be expected to increase at an annual rate of 10%. The city will use the bond interest rate as the interest rate for any public-project evaluation.
(a) Determine the operating cost of the current system in terms of dollars per ton of solid waste.
(b) Determine the economics of each solid-waste disposal alternative in terms of dollars per ton of solid waste.

Question 18

Table summarizes the costs of treatment of a disease based on two different antibiotics and associated health benefits (effectiveness). Which treatment option is the best
Table

Question 19

The Electric Department of the City of Tallahassee, Florida, operates generating and transmission facilities serving approximately 140,000 people in the city and.surrounding Leon County. The city has proposed the construction of a $300 million, 235-MW Circulating Fluidized-Bed Combustor (CFBC) at the Arvah B. Hopkins Station to power a turbine generator that is currently receiving steam from an existing boiler fueled by gas or oil. Among the advantages associated with the use of CFBC systems are the following:
• A variety of fuels can be burned, including inexpensive low-grade fuels with high ash and a high sulfur content.
• The relatively low combustion temperatures inhibit the formation of nitrogen oxides. Acid-gas emissions associated with CFBC units would be expected to be significantly lower than emissions from conventional coal-fueled units.
• The sulfur-removal method, low combustion temperatures, and high-combustion efficiency characteristic of CFBC units result in solid wastes, which are physically and chemically more amenable to land disposal than the solid wastes resulting from conventional coal-burning boilers equipped with flue-gas desulfurization equipment.
On the basis of the Department of Energy's (DOE's) projections of growth and expected market penetration, the demonstration of a successful 235-MW unit could lead to as much as 41,000 MW of CFBC generation being constructed by the year 2017. The proposed project would reduce the city's dependency on oil and gas fuels by converting its largest generating unit to coal-fuel capability. Consequently, substantial reductions in local acid-gas emissions could be realized in comparison to the permitted emissions associated with oil fuel. The city has requested a $50 million cost share from the DOE. Under the Clean Coal Technology Program, cost sharing is considered attractive because the DOE cost share would largely offset the risk of using such a new technology. To qualify for cost-sharing money, the city has to address the following questions for the DOF.
(a) What is the significance of the project at local and national levels
(b) What items would constitute the users' benefits and disbenefits associated with the project
(c) What items would constitute the sponsor's costs
Put yourself in the city engineer's position, and respond to these questions.

Question 20

Table summarizes cervical-cancer treatment options and their health effectiveness. Find the best strategy for treating cervical cancer.
Table

Question 21

Because of a rapid growth in population, a small town in Pennsylvania is considering several options to establish a wastewater treatment facility that can handle upto a flow of 2 million gallons per day (MGD). The town has five treatment options available.
• Option 1: No action. This option will lead to continued deterioration of the environment. If growth continues and pollution results, fines imposed (as high as $10,000 per day) would soon exceed construction costs.
• Option 2: Land-treatment facility. This option will provide a system for land treatment of the wastewater to be generated over the next 20 years and will require the utilization of the most land for treatment of the wastewater. In addition to the need to find a suitable site, pumping of the waste-water for a considerable distance out of town will be required. The land cost in the area is $3,000 per acre. The system will use spray irrigation to distribute wastewater over the site. No more than 1 inch of wastewater can be applied in one week per acre.
• Option 3: Activated sludge-treatment facility. This option will provide an activated sludge-treatment facility at a site near the planning area. No pumping will be required, and only seven acres of land will be needed for construction of the plant, at a cost of $7,000 per acre.
• Option 4: Trickling filter-treatment facility. Provide a trickling filter-treatment facility at the same site selected for the activated sludge plant of option 3. The land required will be the same as that for option 3. Both facilities will provide similar levels of treatment but will be using different units.
• Option 5: Lagoon-treatment system. Utilize a three-cell lagoon system for treatment. The lagoon system requires substantially more land than options 3 and 4 require but less than option 2. Due to the larger land requirement, this treatment system will have to be located some distance outside of the planning area and will require pumping of the wastewater to reach the site.
TABLE ST 16.2
Table summarizes, respectively, (1) the land cost and land value for each option, (2) the capital expenditures for each option, and (3) the O M costs associated with each option.
TABLE ST 16.3
The price of land is assumed to be appreciating at an annual rate of 3%, and the equipment installed will require a replacement cycle of 15 years. Its replacement cost will increase at an annual rate of 5% (over the initial cost), and its salvage value at the end of each replacement cycle will be 50% of the original replacement cost. The structure requires replacement after 40 years and will have a salvage value of 60% of the original cost. The cost of energy and repair will increase at an annual rate of 5% and 2%, respectively. The labor cost will increase at an annual rate of 4%.
With the following sets of assumptions, answer parts (a)and(b).
• Assume an analysis period of 120 years.
• Replacement costs for the equipment, as well as for the pumping facilities, will increase at an annual rate of 5%.
• Replacement cost for the structure will remain constant over the planning period. However, the salvage value of the structure will be 60% of the original cost. (Because it has a 40-year replacement cycle, any increase in the future replacement cost will have very little impact on the solution.)
• All O M cost figures are given in today's dollars. For example, the annual energy cost of $200,000 for option 2 means that the actual energy cost during the first operating year will be $200,000(1.05) = $210,000.
• Option 1 is not considered a viable alternative, as its annual operating cost exceeds $3,650,000.
(a) If the interest rate (including inflation) is 10%, which option is the most cost effective
(b) Suppose a household discharges about 400 gallons of wastewater per day through the facility selected in part (a). What should be the monthly bill assessed for this household