FIGURE 22. Pipes blowing air from the bottom of this enclosure separate contaminants from
the soil. (OHM Corp., Carla Magazino and Chemical Engineering.)
chosen can be analyzed on the basis of the present net worth of the "cash flows" produced
by each method. Such "cash flows" can be estimated by converting savings in compli-
ance, legal, labor, management, and other costs to "cash flows" for each treatment
method. Determining the net present worth of each treatment method will then provide a
comparative evaluation which will be an additional input in the final treatment choice de-
cision.
The table below shows the estimated annual "cash flows" for two suitable treatment
methods: Method A and Method B
Year Method A Method B
0 -$180,00 0 -$180,00 0
1 60,00 0 180,00 0
2 60,00 0 30,00 0
3 60,00 0 18,00 0
4 60,00 0 12,00 0Interest rate charged on the investment is 12 percent.
Using the Net Present Value (NPV), or Discounted Cash Flow (DCF), equation for
each treatment method gives, NPV, Treatment Method = Investment, first year + each
year's cash flow x capital recovery factor for the interest rate on the investment. For the
first treatment method, using a table of compound interest factors for an interest rate of 12
percent, NPV, treatment A = -$180,000 + $60,000/0.27741 = $36,286. In this relation,
the cash flow for years 1, 2, and 3 repays the investment of $180,000 in the equipment.
Hence, the cash flow for the fourth year is the only one used in the NPV calculation.
For the second treatment method, B, NPV = -$180,000 + $180,000/0.8929 +
$30,000/0.7972 + $18,000/0.7118 + $12,000/0.6355 = $103,392. Since Treatment