Two remediation options are being considered for a contaminated land area formerly used for industrial operations. Option 1 involves removing all of the contaminated soil over a two-year period at a cost of 2.2 million per year. Option 2 is to leave the soil in place but treat it with a bioremediation agent at a cost of 960,000/year over a three-year period. Subsequently, the soil would be sampled each for the next five years to ensure the effectiveness of the treatment system. The cost of the sampling program would be 250,000 the first year and 100,000/year for the remaining years. Draw a cash flow diagram for each of the two options. Calculate the net present value of each option based on discount rate of 6 percent/year. Which option has the lowest overall cost? What is the difference in the total cost between the two options based on NPV? Give your answer both in dollars and as a percentage difference.
Two remediation options are being considered for a contaminated land area formerly used for industrial operations. Option 1 involves removing all of the contaminated soil over a two-year period at a cost of 2.2 million per year. Option 2 is to leave the soil in place but treat it with a bioremediation agent at a cost of 960,000/year over a three-year period. Subsequently, the soil would be sampled each for the next five years to ensure the effectiveness of the treatment system. The cost of the sampling program would be 250,000 the first year and 100,000/year for the remaining years.
Draw a cash flow diagram for each of the two options.
Calculate the
Which option has the lowest overall cost? What is the difference in the total cost between the two options based on NPV? Give your answer both in dollars and as a percentage difference.
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