Page 349 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

tax return on investment is 18% p.a., and the equipment life is assumed to be eight years.

27.

a. Do you recommend construction of the base-case process?

b. Do you recommend including either of the process alternatives?

c. Suppose there were another alternative, compatible with either of the previous alternatives,
requiring an additional $3.26 million capital investment. What savings in operating cost would be
required to make this alternative economically attractive?

A new pharmaceutical plant is expected to cost (FCI ) $25 million, and the revenue (R) from the sale
L
of products is expected to be $10 million/yr for the first four years of operation and $15 million/yr
thereafter. The cost of manufacturing without depreciation (COM ) is projected to be $4 million/yr
d
for the first four years and $6 million/yr thereafter. The cost of land (at the end of year zero) is $3
million, the working capital at start-up (which occurs at the end of year 2) is $3 million, and the fixed
capital investment is assumed to be paid out as $15 million at the end of year 1 and $10 million at the
end of year 2. Yearly income starts in year 3, and the plant life is ten years after start-up. The before-
28.
tax criterion for profitability is 17%. Assume the plant has no salvage value, but that the cost of land
and the working capital are recovered at the end of the project life.

a. Draw a labeled, discrete, nondiscounted, cash flow diagram for this project.

b. Draw a labeled, cumulative, discounted (to year zero) cash flow diagram for this project.

c. What is the NPV for this project? Do you recommend construction of this plant?

How much would you need to save annually to be willing to invest $1.75 million in a process
29. improvement? The internal hurdle rate process for improvements is 18% before taxes over eight
years.

How much would you be willing to invest in a process improvement to save $2.25 million/yr? The
30.
internal hurdle rate for process improvements is 15% before taxes over six years.

You can invest $5.1 million in a process improvement to save $0.9 million/yr. What internal hurdle
31.
rate would make this an attractive option? The assumed lifetime for these improvements is nine years.

Recommend whether your company should invest in the following process. The internal hurdle rate is
17% p.a., before taxes, over an operating lifetime of 12 years. The fixed capital investment is made
32. in two installments: $5 million at time zero and $3 million at the end of year 1. At the end of year 1,