Determine whether the hydro-clean offer should be accepted

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Question: An oil refinery must now begin sending its waste liquids through a costly treatment process before discharging them into a nearby stream. The engineering department estimates costs at $300,000 for the first year. It is estimated that if process and plant alterations are made, the waste treatment cost will decline $30,000 each year. As an alternate, a specialized firm, Hydro-Clean, has offered a contract to process the waste liquids for 10 years for a fixed price of $150,000 per year, payable at the end of each year. Either way, there should be no need for waste treatment after 10 years. The refinery manager considers 8% to be a suitable interest rate. Use an annual cash flow analysis to determine whether the Hydro-Clean offer should be accepted.

Reference no: EM132160443

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