Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 42

Water for Semiconductor Manufacturing Case
It is anticipated that the needs for UPW (ultrapure water) at the new Angular Enterprises site will continue for a long time, as long as 50 years. This is the rationale for using capitalized cost as a basis for the economic decision between desalinated seawater (S) and purified groundwater (G). These costs were determined (Example 5.7) to be CC S = $-53.58 million and CC G = $-48.91 million. Groundwater is the clear economic choice.
Yesterday, the general manager had lunch with the president of Brissa Water, who offered to supply the needed UPW at a cost of $5 million per year for the indefinite future. It would mean a dependence upon a contractor to supply the water, but the equipment, treatment, and other costly activities to obtain UPW on-site would be eliminated. The manager asks you to make a recommendation about this seemingly attractive alternative under the following conditions at the same MARR of 12% per year as used for the other analyses:
a)The annual cost of $5 million remains constant throughout the time it is needed.
b)The annual cost starts at $5 million for the first year only, and then it increases 2% per year. (This increase is above the cost of providing UPW by either of the other two methods.)