Oil from a specific type of marine microalgae can be converted into biodiesel that may serve as an al­ternate transportable fuel for automobiles and trucks. If lined ponds are used to grow the algae, the construction cost is $13 million and the M&O cost is estimated at $2.1 million per year. Alterna­tively, if long plastic tubes are used for growing the algae, the initial cost will be higher at $18 million, but less contamination will render the M&O cost lower at $0.41 million per year. At an interest rate of 10% per year and a 5-year project period, which system is better—ponds or tubes? Use a present worth analysis.

What will be an ideal response?What will be an ideal response?


Units are $ million

PWponds = -13 – 2.1(P/A,10%,5)
= -13 – 2.1(3.7908)
= $-20.961 ($-20,960,680)

PWtubes = -18 – 0.41(P/A,10%,5)
= -18 – 0.41(3.7908)
= $-19.554 ($-19,554,228)

Use plastic tubes; PW of cost is lower

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