You are on page 1of 4

GabrielS.

Gusmo
Dr.Tam
CHE175A
DueonMarch8
th
,2012

ChemicalProcessDesignProblemSet6
1. Question27ofchapter10.
[1]

Processforthefabricationofmicroelectroniccomponent:

BaseCase
Design Alternative1 Alternative2
CapitalInvestment($million) 21
AdditionalInvestment($million) 2.15 1.35
ProductRevenue($million/yr) 12 12 12
RawMaterialCosts($million/yr) 5.1 5.1 5.1
OtherOperatingCosts($million/yr) 0.35 0.27 0.31
RequiredbeforetaxreturnoninvestmentROIis18%p.a,andequipmentlifeof8years.
a. BaseCaseDesign
Yearly Cash Flow: Rc:cnucs -Row Hotcriol Costs - 0tbcr 0pcroting Costs
= $12 million -$S.1 million - $u.SS million = $7.2S million
InitialInvestment:$12 million

TheDCFRORforthebasecasedesignconsistsoftheinterestrateatwhichtheNPVofthe
caseiszero.
inJ i or $7.2S million (P A , i, 8) - $21.u million = $u
GabrielS.Gusmo
Dr.Tam
CHE175A
DueonMarch8
th
,2012

The solution leads to a DCFROR of 30.39%, meaning that the project breakeven at any
interestratelowerthan30.39%.Asthedesiredreturnoninvestmentis18%,asDCFRORis
higher,thebasecasedesigncanbeconsideredprofitable.
b. IncrementalAnalysisofAlternatives
Incremental
Alternative1
BaseCase
Alternative2
BaseCase
CapitalInvestment
($million)
2.15 1.35
OtherOperatingCosts
($million/yr)
0.08 0.04
The incremental net present value (INPV) of each alternative is calculated below at the
desiredROI.
INPI
B1
$u.u8 million (P A , 18%, 8) - $2.1S million = $u
INPI
B1
= -$1.82 million
INPI
B2
$u.u4 million (P A , 18%, 8) - $1.SS million = $u
INPI
B2
= -$2.19 million
As INPV is negative for both projects at the desired ROI, none of them would be
consideredpertinenttobeundertaken.
c. If there were a third alternative with additional cost of $3.26 million, the necessary
operational saving to make the alternative economically feasible can be calculated as
following.
inJ A or A (P A , 18%, 8) - $S.26 million = $u A = $. 799 m||||unyr
Being reasonable, this alternative would never exist given that the incremental saving
wouldrequiretheoperationalcosttobepositive.
0PC0SI
BuscCusc
+A = -$u.SS million yr + $u.799 millio yr = $u.449 million yr


GabrielS.Gusmo
Dr.Tam
CHE175A
DueonMarch8
th
,2012

2. Question29ofchapter10.
[1]

Theleastamountthathastobesavedineachyear ofthetotaleightyearproject toaccount


foraninvestmentof$1.75millioninprocessimprovementsistheonethatleadstoaNPVof0,
ortheinternalhurdlerate,whichisconsideredtobe18%,equaltoDCFROR.
inJ A or A (P A , 18%, 8) - $1.7S million A = $429, 177. 3 per year

3. Question35ofchapter10.
[1]

Equipmentselectionforanewmicrofiberprocessforwhichtherearethreedifferentalternatives
Alternative Material
Cost
($thousand)
Maintenance
Cost
($thousand/yr)
Equipment
Life
(yr)
A CarbonSteel 5 5.5 3
B Nialloy 15 3.5 5
C Hastalloy 23 2.5 9
For an after tax internal hurdle rate of 14% p.a., the best alternative could be assessed through
incrementalanalysis;however,aseachprocesshasadifferentlifetime,insteadoftakingtheircash
flowandextendthemtoacommontimebasisof45years,theyaregoingtobecomparedthrough
theirequivalentannualoperatingcost(EAOC)method.
EA0C
A
= $S,Suu.uu pcr ycr + $S,uuu.uu (A P , 14%, S) = $753. per year
EA0C
B
= $S,Suu.uu pcr ycr + $1S,uuu.uu (A P , 14%, S) = $789. 25 per year
GabrielS.Gusmo
Dr.Tam
CHE175A
DueonMarch8
th
,2012

EA0C
C
= $2,Suu.uu pcr ycr + $2S,uuu.uu (A P , 14%, 9) = $7149. 87 per year
The best option is choose the alternative which comprehends the lowest equivalent annual
operatingcostor$7149. 87 per year.
4. Calculatethecapitalizedcostofthefollowingrefluxpumpusedinadistillationprocess.Due
to the nature of the chemical being pumped, the reflux pump must be replaced every four
years. The purchased cost of the pump was $12,500. The installation cost was 70% of the
purchasedcost.Useaninternalhurdlerateof10%p.a.
As there is no need to repay for the installation cost every time that the reflux pump is
replaced, the equipment replacement cost will be 30% of its purchased cost or $3,750. In
addition, residual capital of each replacement, through the capitalized cost method, has to
worththereplacementcostinthesubsequentsubstitution.Inthiscase:
R(1 + i)
n
cq
- R = P
CopitolizcJ Cost = P + R = P _
(1 +i)
n
cq
(1 +i)
n
cq
-1
_ = Su% $12,Suu _
(1 + 1u%)
4
(1 + 1u%)
4
-1
_
= $11, 83. 15

5. References
I. Turton,R.;Bailie,R.C.;Whiting,W.B.;Shaeiwitz,J.A.;Anaysis,SynthesisandDesign
ofChemicalProcesses3
rd
ed.;2010byPrenticeHallPTR.
II. Mathcad15.0Copyright2010ParametricTechnologyCorporation.
III. MicrosoftExcel2010,MicrosoftCorporation.