Page 350 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

$1 million in working capital is required. For the remainder of the project lifetime, $2 million in
income is realized.

You are considering two possible modifications to an existing microelectronics facility. The criterion
for profitability is 18% p.a. over six years. All values are in $million.

33.

a. What do you recommend based on a nondiscounted ROROII analysis?

b. What do you recommend based on an INPV analysis?

c. Based on the results of Parts (a) and (b), what do you recommend?

A new biotech plant is expected to cost (FCI ) $20 million, with $10 million paid at the beginning of
L
the project and $10 million paid at the end of year 1. There is no land cost because the land is
already owned. The annual profit, before taxes, is $4 million and the working capital at start-up
(which occurs at the end of year 1) is $1 million, The plant life is 10 years after start-up. The before-
tax criterion for profitability is 12%. Assume that the plant has no salvage value, and that the working
capital is recovered at the end of the project life.

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

34. 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?

d. What would the annual profit, before taxes, have to be for the NPV to be $2 million?

e. The plant is built and has been operational for several years. It has been suggested that $3 million

be spent on plant modifications that will save money. Your job is to analyze the suggestion. The
criterion for plant modifications is a 16% before-tax return over five years. How much annual
savings are required before you would recommend in favor of investing in the modification?

You are responsible for equipment selection for a new micro-fiber process. A batch blending tank is
required for corrosive service. You are considering three alternatives.

35.

The after-tax internal hurdle rate is 14% p.a. Which alternative do you recommend?