Oil from a specific type of marine microalgae can be converted into biodiesel th

Question

Oil from a specific type of marine microalgae can be converted into biodiesel that may serve as an alternate transportable fuel for automobiles and trucks. If lined ponds are used to grow the algae, the construction cost is $13 million and the M&O cost is estimated at $1.5 million per year. Alternatively, if long plastic tubes are used for growing the algae, the initial cost will be higher at $24 million, but less contamination will render the M&O cost lower at $0.3 million per year. At an interest rate of 10% per year and a 5-year project period, which system is better—ponds or tubes? Use a present worth analysis.

The present worth of lined ponds is $  million and that of plastic tubes is $  million.

Lined ponds or Plastic tubes  are used to grow algae?

Explanation / Answer

Lined Pond is better than plastic tubes because PW of Lined ponds is better than plastic tubes

Lined Ponds A B C D E F 1 Year 0 1 2 3 4 5 2 Initial Investment 13 3 M&O -1.5 -1.5 -1.5 -1.5 -1.5 4 Cash flow 13 -1.5 -1.5 -1.5 -1.5 -1.5 5 Interest rate 10% Present worth -18.69 NPV(A5,B4:F4)-A4 Plastic Tubes A B C D E F 1 Year 0 1 2 3 4 5 2 Initial Investment 24 3 M&O -0.3 -0.3 -0.3 -0.3 -0.3 4 Cash flow 24 -0.3 -0.3 -0.3 -0.3 -0.3 5 Interest rate 10% NPV(A5,B4:F4)-A4 Present worth -25.14

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