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 $105,000 per year. Assuming

Question

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.)

What will be an ideal response?

Answer 1

0 = - (2,300,000 – 1,200,000) + {[(360,000 + 56,000 -125,000] – [(270,000 –
105,000)]}(P/A,?i*,10)
= -1,100,000 + {[(291,000] – [(165,000)]}(P/A,?i*,10)
= -1,100,000 + 126,000(P/A,?i*,10)
(P/A,?i*,10) = 8.7302
From interest tables, ?i* is between 2 and 3%
?i* = 2.55% per year (spreadsheet)
?i* = 2.55% < MARR of 5%,
Select Alternative B