Blanton Agriculture of Santa Monica, California, offers different types and levels of irrigation water conservation systems for use in areas where groundwater depletion is a serious concern. A large farming corporation in India, where depletion is occurring at an alarming rate of 1.6 inches (4 centimeters) per year due to exponential growth in usage for crop irrigation, is considering the purchase of one of the Blanton systems. There are three options with two levels of automation for the first two options. The estimated costs and associated cash flowsdiagrams over a 10-year period are summarized below and on the next page, respectively, for each of the fi ve alternatives.
Costs are categorized as design (Des), development (Dev), and operation (Oper). For alternatives A and B, there is an extra cost of $15,000 per installation year to maintain the manual system in place now. Level 2 development costs are distributed equally over a 2-year period. Alternative C is a retrofi t of the current manual system with no design or development costs, and there is no level 1 option. At an interest rate of 10% per year and a 10-year study period, determine which alternative and level has the lowest LCC.
|
Alternative
|
Cost Component
|
Level 1
|
Level 2
|
|
A
|
Des
|
$100,000
|
$200,000
|
|
Dev
|
175,000
|
350,000
|
|
Oper
|
60,000
|
55,000
|
|
Install time
|
1 year
|
2 years
|
|
B
|
Des
|
$50,000
|
$100,000
|
|
Dev
|
200,000
|
500,000
|
|
Oper
|
45,000
|
30,000
|
|
Install time
|
1 year
|
2 years
|
|
C
|
Oper
|
|
$100,000
|