Page 342 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

9. Repeat Problem 10.8 using a straight-line depreciation method over 7 years. Compare the results
with those obtained in Problem 10.8. Which depreciation method would you use?

The following expenses and revenues have been estimated for a new project:

6
Revenues from sales = $4.1 × 10 /yr

6
Cost of manufacturing (excluding depreciation) = $1.9 × 10 /yr

Taxation rate = 40%

Fixed Capital Investment = $7.7 × 10 6
6
6
(two payments of $5 × 10 and $2.7 × 10 at the end of years 1 and 2, respectively)
Start-up at the end of year 2

10. Working capital = $2 × 10 at the end of year 2
6

6
Land cost = $0.8 × 10 at the beginning of the project (time = 0)

Project life (for economic evaluation) = 10 yr after start-up

For this project, estimate the NPV of the project assuming an after-tax internal hurdle rate of 11%
p.a., using the following depreciation schedules.

a. MACRS method for 5 years

b. Straight-line depreciation with an equipment life (for depreciation) of 9.5 years

Comment on the effect of discounting on the overall profitability of large capital projects.

In reviewing current operating processes, the company accountant has provided you with the
following information about a small chemical process that was built ten years ago.

6
6
6
Capital Investment = $30 × 10 ($10 × 10 at the end of year 1, $15 × 10 at the end of year 2, $5 ×
6
6
10 at the end of year 3. Working capital = $10 × 10 )

11.