The job outlook for civil engineering graduates is rosy. As a result, the City must plan for a new aluminum recycling plant because of the alarming rise in craft beer consumption packaged in aluminum cans and the resulting waste stream impacts.
The city has asked you to review two proposed recycling plant designs and construction and annual maintenance costs as shown below.
|
Year
(t)
|
Design No. 1
($1000s)
|
Design No. 2
($1000s)
|
|
0
1-15(each yr)
|
1,220
100 (O&M)
|
995
118 (O&M)
|
Both designs will be constructed by March 2018, last 15 years, and because of the wear and tear of the recycling process, the facilities have no salvage value.
The Trump administration (federal government) will subsidize 48% of the initial capital cost in its America First program, and the State of Texas has a policy to subsidize 10% of the annual maintenance cost of capital recycling costs by local governments.
The City will seek a loan to finance 25% of the initial capital cost at a borrowing rate of 6.25% with fifteen equal annual payments including principal and interest. The MARR for this type of project is 15% reflecting its operating risk.
a.) What is the uniform annual revenue that must be collected in the next 15 years to make each of the two designs worthwhile from the view of the City?
b.) Which design has a lower cost from this perspective?
c.) Should the City give to consideration to the idea that the job market may significantly change before March 2018? In other words, what happens if beer drinking in the city goes way up or way down?
d.) What other ways of could the worth of the above project be financially assessed?