A waste-holding lagoon situated near the main plant of a chemical company receives sludge on a daily basis. When the lagoon is full, it is necessary to remove the sludge to a site located 4.95 kilometers from the main plant. Currently, when the la-goon is full, the sludge is removed by pumping it into a tank truck and hauling it away. This process requires the use of a portable pump that has an initial cost of $800 and an 8-year life. The company can operate the pump at a cost of $25 per day, but the truck and driver cost $110 per day. Alternatively, the company has a proposal to install a pump and pipeline to the remote site. The pump would have an initial cost of $600, a life of 10 years, and a cost of $3 per day to operate. (a) If the MARR is 15% per year and the pipeline will cost $3.52 per meter to construct, how many days per year must the lagoon require pumping to justify construction of the pipeline? (b) The lagoon was pumped 40 times last year. Which alternative would have been cheaper? How do you know this is the correct answer?

A waste-holding lagoon situated near the main plant of a chemical company receives sludge on a daily basis. When the lagoon is full, it is necessary to remove the sludge to a site located 4.95 kilometers from the main plant. Currently, when the la-goon is full, the sludge is removed by pumping it into a tank truck and hauling it away. This process requires the use of a portable pump that has an initial cost of $800 and an 8-year life. The company can operate the pump at a cost of $25 per day, but the truck and driver cost $110 per day. Alternatively, the company has a proposal to install a pump and pipeline to the remote site. The pump would have an initial cost of $600, a life of 10 years, and a cost of $3 per day to operate. (a) If the MARR is 15% per year and the pipeline will cost $3.52 per meter to construct, how many days per year must the lagoon require pumping to justify construction of the pipeline? (b) The lagoon was pumped 40 times last year. Which alternative would have been cheaper? How do you know this is the correct answer?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 13E

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