Page 304 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

the project is considered to be profitable. Use of DCFROR as a profitability criterion is illustrated in
Example 10.3.

Example 10.3

For the problem presented in Examples 10.1 and 10.2, determine the discounted cash flow rate of return
(DCFROR).

The NPVs for several different discount rates were calculated and the results are shown in Table E10.3.

Table E10.3 NPV for Project in Example 10.1 as a Function of Discount Rate

The value of the DCFROR is found at NPV equals 0. Interpolating from Table E10.3 gives:

Therefore, DCFROR = 12 + 1(0.109) = 12.1%

An alternate method for obtaining the DCFROR is to solve for the value of i in an implicit, nonlinear

algebraic expression. This is illustrated in Example 10.4.

Figure 10.3 provides the cumulative discounted cash flow diagram for Example 10.3 for several discount
factors. It shows the effect of changing discount factors on the profitability and shape of the curves. It

includes a curve for the DCFROR found in Example 10.3. For this case, it can be seen that the NPV for
the project is zero. In Example 10.3, if the acceptable rate of return for our company were set at 20%,
then the project would not be considered an acceptable investment. This is indicated by a negative NPV
for i = 20%.

Figure 10.3 Discounted Cumulative Cash Flow Diagrams Using Different Discount Rates for Example
10.3