Problem 8.20 EP Electric has identified two new methods to treat its cooling water. Alternative I (for inflow) would treat the raw water with a conventional reverse os­mosis system so that the cycles of concentration could be increased from 5 to 20. This will result in water cost savings of $360,000 per year and chem­ical cost savings of $56,000 per year. The initial cost of the equipment will be $2.3 million with an operating cost of $125,000 per year. Alternative B (for blowdown) will treat the cooling tower blowdown water using a high-pressure seawater reverse osmosis system to recover most of the water that is sent to an evapo­ration pond. This option will result in water sav­ings of $270,000 per year. The cost of the system will be $1.2 million with an operating cost of

Question

$105,000 per year. Assuming one of the two methods must be installed, determine which is preferred on the basis of the incremental ROR value using MARR of 5% per year, which is a typically low return expected of government proj­ects. Use a 10-year study period with no salvage value for either system. (Note: See Problem 8.41 for more on this situation.)

Solution 8.41

In Problem 8.20, two methods of cooling water treatment are analyzed. These are revenue alternatives which generate annual savings against their costs. (a) Perform the complete procedure for incremental ROR analysis for revenue alterna­tives to determine which method to select at MARR = 5% per year. (b) If a MARR of 8% per year were required, what recommendation would you make?

Answer 1

(a) Determine if methods are economically justified. From row 14,



i*B = 6.25% > MARR = 5%; justified

i*I = 4.52% < MARR = 5%, not justified



Incremental ROR is not needed; select method B



(b) Neither method is justified at MARR = 8%. Since one of the methods must be installed, reduce the MARR expectation; select B with the larger i* and small ?i* = 2.55% per year.