Question

Oil from a specific type of marine microalgae can be converted into biodiesel that may serve as an alternate transportable fuel for automobiles and trucks. If lined ponds are used to grow the algae, the construction cost is $13 million and the M&O cost is estimated at $2.1 million per year. Alternatively, if long plastic tubes are used for growing the algae, the initial cost will be higher at $18 million, but less contamination will render the M&O cost lower at $0.41 million per year. At an interest rate of 10% per year and a 5-year project period, which system is better—ponds or tubes? Use a present worth analysis.

Answer 1

The marine microalgae biodiesel production systems' present worth is to be compared, and the appropriate strategy is to use the present worth analysis. The construction cost for the lined ponds is $13 million, and the M&O cost is $2.1 million per year. On the other hand, the initial cost of using long plastic tubes for growing the algae is $18 million, but the M&O cost is lower at $0.41 million per year. With a 5-year project period and an interest rate of 10%, which method of production is preferable?First, we'll calculate the equivalent worth of each biodiesel production system.Using Present Worth Analysis:Let's find the Present Worth (PW) of each project system.PW of system using lined pondsPV = A (P/A, 10%, 5) + F (P/F, 10%, 5)PV = 2.1 (3.791) + 13 (0.620)PV = 19.955 + 8.06PV = $28.015 millionFor the system using long plastic tubesPV = A (P/A, 10%, 5) + F (P/F, 10%, 5)PV = 0.41 (3.791) + 18 (0.620)PV = 1.56 + 11.16PV = $12.72 millionThe PW of the long plastic tube system is $12.72 million, while the PW of the lined pond system is $28.015 million. Therefore, using long plastic tubes to produce marine microalgae biodiesel is the better option for biodiesel production.