Two firms propose to dispose of all of the waste currently entering the City of

Question

Two firms propose to dispose of all of the waste currently entering the City of Columbia landfill. Each proposal is to handle the waste stream for 10 years. The current estimate is for about 220,000 tons of trash per year. Both firms' minimum acceptable rate of return is 5 percent. 2. Firm #1: Wants $3 million dollars up front and will bill the City at $32/ton of waste Firm #2: wants $1.5 million up front and will bill the City at $35/ton for the first five Which firm would be a better deal for the City? Support your answer quantitatively methane gas collection/treatment and market delivery system. An acceptable rate of return is for the 10-year period years and $40/ton for the last five years. 3. Cynthia Mitchell, Superintendent at the Columbia landfill, is considering three alternatives for a five (5) percent. Which alternative should be selected? Alternative Installed Cost (S millions) Uniform Annual Benefit (S) Useful Life (Years Salvage Value (S) 1.5 100,000 150,000 250,000 20 50,000 75,000 150,000 2.5 10 Khisty CJ and Mohammadi J (2001) Fundamentals of Systems Engineering with Economics, Probability and Statistics, Prentice Hall, Upper Saddle River New Jersey

Explanation / Answer

3.

Since the useful life of the projects are unequal, then the uniform annual worth analysis will be used to identify the best project.

R = 5%

For alternative A,

Net present worth = Present value of cash inflows – initial investment

Net present worth = 100000*(1-1/(1+5%)^10)/.05 + 50000/1.05^10 - 1000000

Net present worth = -$197131

Let annual worth = UAWa

Then,

-197131 = UAWa*(1-1/1.05^10)/.05 = UAWa*7.72

UAWa = -197131/7.72

UAWa = -$25535.1

For alternative B,

Net present worth = Present value of cash inflows – initial investment

Net present worth = 150000*(1-1/(1+5%)^20)/.05 + 75000/1.05^20 - 1500000

Net present worth = $397598.3

Let annual worth = UAWb

Then,

397598.3 = UAWb*(1-1/1.05^20)/.05

UAWb = 397598.3/12.46

UAWb= $31909.98

For alternative C,

Net present worth = Present value of cash inflows – initial investment

Net present worth = 250000*(1-1/(1+5%)^20)/.05 + 150000/1.05^20 - 2500000

Net present worth = $672086

Let annual worth = UAWc

Then,

672086= UAWc*(1-1/1.05^20)/.05

UAWc = 672086 / 12.46

UAWc = $53939.49

Since the biggest uniform annual worth is of alternative C that is $53939.49, hence the alternative C should be selected.

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