Economics and Pollution Prevention
You are working for a factory and have been asked to assess the economic impacts of implementing a new pollution prevention program at the factory. The factory managers required you to design the program so that the production from the factory is not reduced by the pollution prevention program. Currently, the factory has an annual operation cost of $480,000/yr. It currently costs the factory $75,000 per year to dispose of its waste. The plan that you developed will have an initial equipment cost of $100,000. However, the result of your plan will reduce the annual operating cost to $400,000/yr and the waste disposal cost to $30,000/yr.
- Assuming a constant discount rate of 7 percent, how long will it take the factory to break even on their investment in your pollution prevention program?
A metal plating operator is considering installing an ion exchange unit to recover and reuse metals currently lost in the rinse waters from the plating line. The company presently pays a sewer usage fee of $4.00 per kg of metal sent to the sewage treatment plant. The metal plater is currently discharging 1,000 kg/yr of metal to the sewer. The metal costs the company $120 per kilogram to purchase. The ion exchanger will recover 98 percent of this metal, and all of this recovered metal can be reused in the metal plating operation. The ion exchange unit will cost $50,000 to purchase and install and $12,000 per year to operate.
- What is the net cost or benefit of the project, assuming a discount rate of 10 percent over 10 years (based on an expected equipment life of 10 years)?
- What is the payback period for the ion exchange unit?
- Based on your economic analysis, would you recommend that the ion exchange unit should be installed to the metal plater? Why?
- Discuss how two other factors besides economics might influence the decision.
