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 950,000$/year over a three-year period. Subsequently, the soil would be sampled each year for the next five years to ensure the effectiveness of the treatment system. The cost of the sampling program would be 240,000$ the first year and 120,000 $/year for the remaining four years. a)Calculate the net present value of each option based on a discount rate of 5% . b)Which option has the lowest overall cost? What is the difference in total cost between the two options based on NPV( percentage)?
Two remediation options are being considered for a contaminated land area formerly used for industrial operations. Option 1 involves removing all of the contaminated soil over a two-year period at a cost of 2.2$ million per year. Option 2 is to leave the soil in place but treat it with a bioremediation agent at a cost of 950,000$/year over a three-year period. Subsequently, the soil would be sampled each year for the next five years to ensure the effectiveness of the treatment system. The cost of the sampling program would be 240,000$ the first year and 120,000 $/year for the remaining four years. a)Calculate the net present value of each option based on a discount rate of 5% . b)Which option has the lowest overall cost? What is the difference in total cost between the two options based on NPV( percentage)?
Chapter2: Income Tax Concepts
Section: Chapter Questions
Problem 79DC
Related questions
Question
Two remediation options are being considered for a contaminated land area formerly used for industrial operations. Option 1 involves removing all of the contaminated soil over a two-year period at a cost of 2.2$ million per year. Option 2 is to leave the soil in place but treat it with a bioremediation agent at a cost of 950,000$/year over a three-year period. Subsequently, the soil would be sampled each year for the next five years to ensure the effectiveness of the treatment system. The cost of the sampling program would be 240,000$ the first year and 120,000 $/year for the remaining four years.
a)Calculate thenet present value of each option based on a discount rate of 5% .
b)Which option has the lowest overall cost? What is the difference in total cost between the two options based on NPV( percentage)?
a)Calculate the
b)Which option has the lowest overall cost? What is the difference in total cost between the two options based on NPV( percentage)?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning