An Engineer Wants to Estimate the Annual Inflation- Free Cost

Short Answer

An engineer wants to estimate the annual inflation- free cost of owning an aerobic digester system with a capacity of 195 million gallons per day (MGD) for the first 8 years of operation. Company records show that the cost of a similar system with a capacity of 75 MGD was $8 million five years ago. The equipment cost index has increased 26% per year since then, and the future general inflation rate is forecast to be 2% per year. He estimates that the annual operating expenses of the new system would be $440,000 per year for the first two years and increase to $441,500 per year thereafter, due to the increase in maintenance costs. Calculate the annual inflation- free cost of owning the 295- MGD system for the first 8 years. Use a cost- capacity exponent of 0.14 for the system and a market- based MARR of 8% per year.