Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / The plant engineer of a major food processing corporation is evaluating alternatives to supply electricity to the plant

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?

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

We have the following information

Wood Option

Installation Cost = $1200/kilowatt. The Power plant is 4000 kilowatt

So, Installation Cost = $1200 × 4000 = $4,800,000

Annual operating Cost = $130,000

Wood Consumption Cost table

Year

Wood Consumption in Tons

Wood Cost per ton ($)

Wood Consumption Cost ($)

1

30,000

30

       9,00,000

2

30,000

35

      1,050,000

3

30,000

40

      1,200,000

4

30,000

45

      1,350,000

5

30,000

50

      1,500,000

6

30,000

55

      1,650,000

7

30,000

60

      1,800,000

8

30,000

65

      1,950,000

9

30,000

70

      2,100,000

10

30,000

75

      2,250,000

 

Life (n) = 10 years

MARR = 12%

PW(12%) = 4,800,000 + 130,000(P/A, 12%, 10) + 9,00,000(P/F, 12%, 1) + 1,050,000(P/F, 12%, 2) + 1,200,000(P/F, 12%, 3) + 1,350,000(P/F, 12%, 4) + 1,500,000(P/F, 12%, 5) + 1,650,000(P/F, 12%, 6) + 1,800,000(P/F, 12%, 7) + 1,950,000(P/F, 12%, 8) + 2,100,000(P/F, 12%, 9) + 2,250,000(P/F, 12%, 10)

PW(12%) = 4,800,000 + 130,000[((1+0.12)10 – 1)/0.12 (1+0.12)10] + 9,00,000/(1 + 0.12)1 + 1,050,000/(1 + 0.12)2 + 1,200,000/(1 + 0.12)3 + 1,350,000/(1 + 0.12)4 + 1,500,000/(1 + 0.12)5 + 1,650,000/(1 + 0.12)6 + 1,800,000/(1 + 0.12)7 + 1,950,000/(1 + 0.12)8 + 2,100,000/(1 + 0.12)9 + ,2,250,000/(1 + 0.12)10

PW(12%) = 4,800,000 + 734,529 + 803,571 + 837,054 + 854,136 + 857,949 + 851,140 + 835,941 + 814,229 + 787,572 + 757,281 + 724,440

PW(12%) of Wood Option = $13,657,843

Oil Option

Installation Cost = $1000/kilowatt. The Power plant is 4000 kilowatt

So, Installation Cost = $1000 × 4000 = $4,000,000

Annual operating Cost = $130,000

Oil Consumption Cost table

Year

Oil Consumption in Tons

Oil Cost per barrel ($)

Oil Consumption Cost ($)

1

46,000

54

2,484,000

2

46,000

59

2,714,000

3

46,000

64

2,944,000

4

46,000

69

3,174,000

5

46,000

74

3,404,000

6

46,000

79

3,634,000

7

46,000

84

3,864,000

8

46,000

89

4,094,000

9

46,000

94

4,324,000

10

46,000

99

4,554,000

 

Life (n) = 10 years

MARR = 12%

PW(12%) = 4,000,000 + 130,000(P/A, 12%, 10) + 2,484,000 (P/F, 12%, 1) + 2,714,000 (P/F, 12%, 2) + 2,944,000 (P/F, 12%, 3) + 3,174,000 (P/F, 12%, 4) + 3,404,000 (P/F, 12%, 5) + 3,634,000 (P/F, 12%, 6) + 3,864,000 (P/F, 12%, 7) + 4,094,000 (P/F, 12%, 8) + 4,324,000 (P/F, 12%, 9) + 4,554,000 (P/F, 12%, 10)

PW(12%) = 4,000,000 + 130,000[((1+0.12)10 – 1)/0.12 (1+0.12)10] + 2,484,000/(1 + 0.12)1 + 2,714,000/(1 + 0.12)2 + 2,944,000/(1 + 0.12)3 + 3,174,000/(1 + 0.12)4 + 3,404,000/(1 + 0.12)5 + 3,634,000/(1 + 0.12)6 + 3,864,000/(1 + 0.12)7 + 4,094,000/(1 + 0.12)8 + 4,324,000/(1 + 0.12)9 + 4,554,000/(1 + 0.12)10

PW(12%) = 4,000,000 + 734,529 + 2,217,857 + 2,163,584 + 2,095,481 + 2,017,134 + 1,931,521 + 1,841,097 + 1,747,877 + 1,653,498 + 1,559,278 + 1,466,266

PW(12%) of Wood Option = $23,428,123

Since, the Present Worth (PW) of Cost of Wood option is lower, so Wood Alternative should be used.