The capital cost of the membrane treatment system is $500,000 with operating costs at $100,000 occuring biannually with additional $25,000 per year for contract services. The capital cost of the biological treatment unit is $800,000 with operating costs including sludge removal at $40,000 annually with additional service contract with $10,000 annually. The discount rate is 5% and two systems are compared for 20 years of use.
1) Draw cash flow diagram for each system demonstrating the first 10 years of use.
2) What is the total net equivalent present value (year 0) for the bio filtration system and membrane system? (Includes both salvage value and maintenance)
3) Define payout and describe how you would calculate it.
4) What is the rate of return of the bio filtration system and the membrane system?