A medium-sized nonprofit company in a remote desert incurs a cost of $175 a month to bring water in non-recyclable bottles to quench the thirst of its volunteers. Someone suggested that they could collect rainwater from their roof if they bought a cistern, roof liner, and sterilizer for a total of $5,500. The sterilizer needs maintenance which would cost $1,750 a year in parts and chemicals. The sterilizer has a life of 20 years and cannot be resold. The sterilized water will be put into plastic bottles which would cost $120 per year for the estimated 500 cases of bottles a year needed. A local recycling company will pick up the used plastic bottles and give the nonprofit company $0.12 per case for them. You must use annual cash flow analysis and assume an interest rate of 5%.
(a) What is the cost difference between sterilizing the water versus of having water brought in?
Answer:
Reasoning/Work:
(b) Would you buy the sterilizer system? Consider both economic and non-economic reasons.
Answer:
Reasons: