Eric made a physical model of a cell membrane by putting one zip-top plastic bag inside another. He punched some straws through
2 answers:
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Answer:
option A is to be chosen because the net present value of cost is $1,216,986
Explanation:
Company has to choose between 3 options:
We will calculate net present value of costs for each alternative to decide the best:
<u>Option A:</u>
Cost of Investment : $800,000
Annual Operating costs : $50,000 + $60,000 = $110,000
Discount rate 10%
Annuity factor at 10% for 5 Years
Now to get present value on $110,000 for 5 Years at 10% discount rate, we should multiply it by Annuity factor.
= $110,000 × 3.79078 = $416,986
Net present value of cost for Option A = $800,000 + $416,986 = $1,216,986
<u>Option B:</u>
Burner Cost: $200,000
Life = 5 Years
Annuity factor at 10% = 3.79078
Annual Coal Expenses: 8,000 tons at $40 per ton = $320,000
Annual Maintenance costs: $10,000
Net present value of annual costs = $330,000 × 3.79078 = $1,250,957
Net present value of cost for Option B = $200,000 + 1,250,957 = $1,450,957
<u>Option C:</u>
Current NOx emission level: 250 Tons
Required NOx emission level : 100 tons
Permits to be brought = 250 -100 = 150 Tons
Cost of per permit per ton : $2500
Annual Cost of option C for the first Year = $2500 × 150 = $375,000
As annual increase in expense are 10% and the company uses same discount rate for computing present value.
Present value of annual cost for each year is $375,000
So present value of total cost for Option C = $375,000*5 = $1,875,000