Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
A chemical engineer is determining the most economical alternative by comparing three alternatives, as well as the do nothing alternative, for a new chemical process
A chemical engineer is determining the most economical alternative by comparing three alternatives, as well as the do nothing alternative, for a new chemical process. He investigates the costs and the benefits for each of the alternatives and determines the net present worth of each alternative using a minimum attractive rate of return of 10%. All of the alternatives will have a life span of 20 years. The three potential alternatives being analyzed are listed in the table and figures are the cash flow diagrams for the potential chemical processes. Chemical Engineering Process Alternatives Uniform Net Alternative Total Investment Annual Benefit Chemical process 1 $500,000.00 $51.000.00 Chemical process 2 $950,000.00 $105,000.00 Chemical process 3 $1.500,000.00 $150,000.00 0 0 Do nothing Terminal Value at the End of 20 Years $300,000.00 $300,000.00 $400,000.00 0 F: $300.000
F$300,000 (= 10% A=551,000 20 Po=$500,000 NPWP Cash flow diagram for chemical process 1
F$300,000 1 = 10% A=$105,000 20 Po-$950,000 NPW- Cash flow diagram for chemical process 2
F70-$400,000 i 10% A = $150,000 20 Po $1.500.000 NPW-? Cash flow diagram for chemical process 3
Expert Solution
Solution:
Given that,
A chemical engineer is determining the most economical alternative by comparing three alternatives, as well as the do nothing alternative, for a new chemical process.
I = 10%
N = 20
(1).
The chemical process 1:
Benefits = The uniform net annual benefit = $51,000
The costs = The total investment(a/p,i,n) + The terminal value(a/f,i,n)
= 500,000(a/p,10%,20) + 300,000(a/f,10%,20)
= 500,000 0.1175 + 300,000 0.0175
= 58,750 + 5,250
= 64,000
b/c ratio = benefits / costs
= 51,000 / 64,000
= 0.7968
(2).
The chemical process 2:
Benefits = The uniform net annual benefit = $105,000
The costs = The total investment(a/p,i,n) + The terminal value(a/f,i,n)
= 950,000(a/p,10%,20) + 300,000(a/f,10%,20)
= 950,000 0.1175 + 300,000 0.0175
= 111,625 + 5,250
= 116,875
b/c ratio = benefits / costs
= 105,000 / 116,875
= 0.8983
(3).
The chemical process 3:
Benefits = The uniform net annual benefit = $150,000
The costs =The total investment(a/p,i,n) + The terminal value(a/f,i,n)
= 1,500,000(a/p,10%,20) + 400,000(a/f,10%,20)
= 1,500,000 0.1175 + 400,000 0.0175
= 176,250 + 7,000
= 183,250
b/c ratio = benefits / costs
= 150,000 / 183,250
= 0.8185
Since all the three alternatives have a b/c ratio of less then 1 , therefore do nothing is the best option.
So do nothing is the right answer.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
