Page 294 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

The alternative is to do nothing and leave the $500,000 in the investment portfolio earning interest.
What interest rate is required in the investment portfolio for the better choice to be to do nothing?

It is necessary to evaluate the profitability of proposed improvements to a process prior to obtaining
approval to implement changes. For one such process, the capital investment (end of year 0) for the
project is $250,000. There is no salvage value. In years 1 and 2, you expect to generate an after-tax
revenue from the project of $60,000/yr. In years 3–8, you expect to generate an after-tax revenue of
$50,000/yr. Assume that the investments and cash flows are single transactions occurring at the end
of the year. Assume an effective annual interest rate of 9%.
31.
a. Draw a discrete cash flow diagram for this project.
b. Draw a cumulative, discounted (to year 0) cash flow diagram for this project.
c. What is the future value of this project at the end of year 8?
d. Instead of investing in this project, the $250,000 could remain in the company’s portfolio.
What rate of return on the portfolio is needed to equal the future value of this project at the

end of year 8? Would you invest in the project, or leave the money in the portfolio?

In Problem 31, the net revenue figures were generated using a taxation rate of 45% and a straight-line
32. depreciation over the eight-year project. Calculate the yearly net revenues if the five-year MACRS
depreciation schedule were used.

You are evaluating the profitability potential of a process and have the following information. The
criterion for profitability is a 15% rate of return over ten operating years. The equipment has zero
salvage value at the end of the project.

Fixed capital investment (including land) in four installments (all values are in millions of dollars as
one transaction at the end of the year):

33.

a. Draw a discrete, discounted cash flow diagram for this process.
b. Draw a cumulative, discounted cash flow diagram for this process.
c. What is the present value (at end of year 0) for this process?
d. What is the future value at the end of year 13?
e. What would the effective annual interest rate have to be so that the present value (end of year
0) of this investment is zero? (This interest rate is known as the DCFROR, and it will be
discussed in the next chapter.)
f. What is your recommendation regarding this process? Explain.

34. What are the MACRS depreciation allowances for recovery periods of four, six, and nine years?

For a new process, the land was purchased for $10 million. The fixed capital investment, paid at the
end of year 0, is $165 million. The working capital is $15 million, and the salvage value is $15