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The plant engineer of a major food processing corporation is evaluating alternatives to supply electricity to the plant

Economics

The plant engineer of a major food processing corporation is evaluating alternatives to supply
electricity to the plant. He desires to know if he should build a 4000-kilowatt power plant. His
operating costs (other than fuel) for such a power plant are estimated to be $130,000 per year. He
is considering two alternative fuels:
WOOD. Installed cost of the power plant is $1200/kilowatt. Fuel consumption is 30,000 tons per
year. Fuel cost for the first year is $30 per ton and is estimated to increase at a rate of $5 per ton
for each year after the first. OIL. Installed cost is $1000/kw. Fuel consumption is 46,000 barrels per year. Fuel cost is $54 per
barrel for the first year and is estimated to increase at $5/barrel per year for each year after the first.
If MARR is 12%, and the analysis period is 10 years, which fuel alternative should the engineer
choose?

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