A city with a population of 504,000 persons is considering
Question # 00072068
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Updated on: 05/22/2015 12:29 AM Due on: 05/29/2015
A city with a population of 504,000 persons is considering introducing a recycling program that would require residents to separate paper from their household waste so that it can be sold rather than buried in a landfill like the rest of the town’s waste. Two major benefits are anticipated: revenue from the sale of waste paper and avoided tipping fees (the fee that the town pays the owners of landfills to bury its waste). Aside from the capital costs of specialized collection equipment, household containers, and a sorting facility, the program would involve higher collection costs, inconvenience costs for households, and disposal costs for paper that is collected but not sold. The planning period for the project has been set at eight years, the expected life of the specialized equipment.
The following information has been collected by the city’s sanitation department:
Waste Quantities: Residents currently generate 3.6 pounds of waste per person per day. Over the next 10 years, the daily per capita amount is expected to grow by an average of 0.01 pounds per year.
Capital Costs: The program would require an initial capital investment of $1,688,000. Based on current resale values, the scrap value of the capital at the end of eight years is expected to be 20 percent of its initial cost.
Annual Costs: The department estimates that the separate collection of paper will add an average of $6/ton to the cost of collecting household waste. Each ton of paper collected and not sold would cost $4 to return to the landfill.
Savings and Revenues: Under a long-term contract, tipping fees are currently $45 per ton with annual increases equal to the rate of inflation. The current local market price for recycled paper is $25/ton.
Paper Recovery: The fraction of household waste made up of paper has remained fairly steady in recent years at 32 percent. Based on the experience of similar programs in other towns, it is estimated that 75 percent of paper included in the program will be separated from other waste and 80 percent of the paper that is separated will be suitable for sale, with the remaining 20 percent of the collected paper returned to the landfill.
Household Separation Costs: Each household will spend an average of 10 minutes per week separating paper from other waste and storing it. There are on average 4.2 persons per household in this city and the average hourly wage is $19.50.
Discount Rate: The sanitation department has been instructed by the budget office to discount at the town’s real borrowing rate of 5 percent. It has also been instructed to assume that annual net benefits accrue at the end of each of the eight years of the program.
a. Calculate the present value of net benefits for the program.
b. Would a recycling program like this be more viable in large versus small cities (measured in terms of population) or in higher versus lower income cities? How do you know?
The following information has been collected by the city’s sanitation department:
Waste Quantities: Residents currently generate 3.6 pounds of waste per person per day. Over the next 10 years, the daily per capita amount is expected to grow by an average of 0.01 pounds per year.
Capital Costs: The program would require an initial capital investment of $1,688,000. Based on current resale values, the scrap value of the capital at the end of eight years is expected to be 20 percent of its initial cost.
Annual Costs: The department estimates that the separate collection of paper will add an average of $6/ton to the cost of collecting household waste. Each ton of paper collected and not sold would cost $4 to return to the landfill.
Savings and Revenues: Under a long-term contract, tipping fees are currently $45 per ton with annual increases equal to the rate of inflation. The current local market price for recycled paper is $25/ton.
Paper Recovery: The fraction of household waste made up of paper has remained fairly steady in recent years at 32 percent. Based on the experience of similar programs in other towns, it is estimated that 75 percent of paper included in the program will be separated from other waste and 80 percent of the paper that is separated will be suitable for sale, with the remaining 20 percent of the collected paper returned to the landfill.
Household Separation Costs: Each household will spend an average of 10 minutes per week separating paper from other waste and storing it. There are on average 4.2 persons per household in this city and the average hourly wage is $19.50.
Discount Rate: The sanitation department has been instructed by the budget office to discount at the town’s real borrowing rate of 5 percent. It has also been instructed to assume that annual net benefits accrue at the end of each of the eight years of the program.
a. Calculate the present value of net benefits for the program.
b. Would a recycling program like this be more viable in large versus small cities (measured in terms of population) or in higher versus lower income cities? How do you know?
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Rating:
/5
Solution: A city with a population of 504,000 persons is considering