SCHOOL OF CHEMICAL ENGINEERING
ASSESSMENT COVER SHEET
Student Name: Quoc Anh Nguyen
Student ID: 1697736
Course (eg Materials I)
Calender No. (eg Chem Eng 1003)
Assessment Title (eg pollution today) Assignment 2
Lecturer/Tutor
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Date Received
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Signed: Date: 15/06/2020
Question 1. REPAIR OR REPLACE
a.
Once Off Savings For New Compressor
Repair of old compressor 200000
Trade in value of old compressor 30000
Total once off savings 230000
Ongoing Savings For New Compressor
Operating cost - old compressor 176000
Operating cost - new compressor 160000
Operating cost savings 16000
Once Off Savings for New Compressor
The installed cost of the new compressor is $300,000 Deprec'n =30000$
The original cost of the old compressor was $250,000 Deprec'n=25000$
The tax rate is 30%
Unclaimed Deprec'n = 6x25000= $150000
Cash Flow Calculations
Year Capital Saving Pre- Deprec'n Taxabl Tax After tax Cumulative
s tax e paid cash flow cash costs
cash savings
flow
0 300000 230000 -70000 150000 80000 24000 -94000 -94000
1 16000 16000 5000 11000 3300 12700 -81300
2 16000 16000 5000 11000 3300 12700 -68600
3 16000 16000 5000 11000 3300 12700 -55900
4 16000 16000 5000 11000 3300 12700 -43200
5 16000 16000 5000 11000 3300 12700 -30500
6 16000 16000 5000 11000 3300 12700 -17800
7 16000 16000 30000 -14000 -4200 20200 2400
8 16000 16000 30000 -14000 -4200 20200 22600
9 16000 16000 30000 -14000 -4200 20200 42800
10 16000 16000 30000 -14000 -4200 20200 63000
total 300000 390000 90000 300000 90000 27000 63000
20200 x A 4 , i
NPV =−94000+12700 x A 6 ,i +
( 1+ i )6
i=10 %=¿ A6 , i=4.35, A 4 ,i=3.17=¿ NPV =−2544.2 $
IRR=9.43 %
−2544.2
PWPI = =−0.0085
300000
17800
after tax payback =6+ =6.88 years
20200
b. the compressor should be fixed as the NPV< 0
the decision is not very clear cut as the NPV is very small compared to the CaPex
c. .
NPV of OPEX saving
i=0.1=¿ A 10 ,i=6.14
NPV =Operating cost savings x ( 1−tax rate ) x A10 , i=16000 x ( 1−0.3 ) x 6.14=68819 ( $ )
The operating savings have a material impact on the overall NPV.
Question 2. ACCELERATION PROJECT
Once Off Savings For New Compressor
Repair of old compressor 200000
Trade in value of old compressor 30000
Total once off savings 230000
Ongoing Savings For New Compressor
Operating cost - old compressor 176000
Operating cost - new compressor 160000
Operating cost savings 16000
Old Compressor Details
Cash flow saving calculation
Once Off Savings For New Compressor
Repair of old compressor 200000
Trade in value of old compressor 30000
Total once off savings 230000
Ongoing Savings For New Compressor
Operating cost - old compressor 176000
Operating cost - new compressor 160000
Operating cost savings 16000
Old Compressor Details
Depriciatio
n 10% tax rate 35%
tax deffered no
Net present value calculations
b.
500
0
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
-500
NPV $000
-1000
-1500
-2000
Discount rate (%)
Figure 2.1 the correlation between discount rate and NPV
Based on figure 2.1, there are 2 zero NPVs at 9.04% and 33%
c..
At discount rates of 10% and 20%, the NPV are positive, thus the decision are both to proceed.
Question 3. LEASE OR PURCHASE
a.
Lease payments: $60,000 per month= $720000 per annum
Purchase cost: $3,600,000
Residual value: $540,000
Depreciation= 3600000/6=$600000
Tax rate=30%
Discount rate= 7.5%
Cash flow calculations
Once Off Savings For New Compressor
Repair of old compressor 200000
Trade in value of old compressor 30000
Total once off savings 230000
Ongoing Savings For New Compressor Deprec'n 0.1
Operating cost - old compressor 176000 Tax rate 0.3
558000
NPV =−3096000+684000 x A5 , i+
( 1+i )6
i=7.5 %=¿ A5 , i=4.05=¿ NPV =32948 $
IRR=7.85 % by interpolation
360000
after tax payback =4+ =4.53 years
684000
b. NPV>0 thus decision is not to lease.
The decision is reasonable clear cut (quite large NPV)
c.
Lessor's Interest Rate
Calculated as the IRR for the pre-tax cash flows
Solve:
540000
NPV =0=−2880000+720000 x A 5 ,i +
( 1+i )6
i=12 % , A5 , i=3.604=¿ NPV =−10980($ )
i=11% , A 5 ,i=3.696=¿ NPV =69752($)
by interpolation i=11.9%
d.
It is a financial lease
Question 4. REPLACE OR SCRAP
Mass balance
1280 t/d 1280 t/d
1557 t/d 172.3 t/d
215.4 t/d
1600 t/dt/d
1384.6 1600 t/d
1600 t/d
1384.6 t/d 1536 t/d
64 t/d
1280 t/d 320 t/d
1557t/d 43 t/d
1600 t/d
7500 x 24 t
Maximal steam ¿ TA = =1384.6( )
130 d
m condensate =1536 t /d
The deaerator uses 4 tonnes of LP steam per 100 tonnes of boiler feedwater:
m boiler feed water 100
¿= =25
m steam¿ deaerator 4
m condensate + m steam¿ deaerator ¿=mboiler feed water
m boiler feed water =1600 t / d
m steam ¿ deaerator ¿=64 t /d
When the TA is operating at full capacity:
t
m LP steam =1600−1384.6=215.4 ( )
d
215.4 t
m steam ¿ desuperheater ¿= =172.3( )
1.25 d
t
m HP steam =172.3+ 1384.6=1557 ( )
d
When the TA is not operating:
1600
m LP steam = =1280t /d
1.25
Calculation of Savings
Purchased Steam and Power Quantities
Additional steam to generate power:
extra steam=1557−1280=277 ( dt )=101077 ( at )
Power generated:
power generated=7.5 MW =7500 ( kW )=7500 x 24 x 365=6.57 x 106 (kWh pa)
Capital: $6,000,000
Scrap value:0
The annual maintenance cost is 5% of the capital cost:
$
MTE=5 %x6000000=300000( )
a
Operating supplies and expenses for the replacement TA: OP supplies=$250,000 pa
Depreciation: Deprec'n=10%x 6000000=600000($/a)
Purchase power:
$
6.57 x 10 6 x 0.07=4599000( )
a
Additional purchased HP steam:
$
101077 x 21=2123205( )
a
Savings for Replacement STA
Once Off Savings For New Compressor
Repair of old compressor
Trade in value of old compressor
Total once off savings
Cash Flow Calculations
Once Off Savings For New Compressor
Repair of old compressor 200000
Trade in value of old compressor 30000
Total once off savings 230000
Ongoing Savings For New Compressor Deprec'n 0.1
Operating cost - old compressor 176000 Tax rate 0.3
Operating cost - new compressor 160000
Operating cost savings 16000
Net Present Value Calculations
Discount rate #1 12.50% A10,i=5.54 => NPV =1610225
Discount rate #2 20% A10,i=4.19 => NPV = -237144
IRR(interpolation) = 19%
After tax payback =4.36 Pre tax payback = 3.58
PWPI index =0.2684
b. NPV steam cost=steam cost x ( 1−0.28 ) x A 10, i
NPV power cost =−power cost x ( 1−0.28 ) x A 10 ,i
NPV capaex =capitals− A10 , i xdepre c ' nx 0.28
NPV other=NPV 12.5 %−NPV steam cost−NPV power cost−NPV capaex
NPV steam cost -8463584 -526% of project NPV
NPV power cost 18332673 1139% of project NPV
NPV capex -5069880 -315% of project NPV
NPV other -3188984 -198% of project NPV
c. NPV>0, thus the project should be approved
d. Examples of sunk costs:
Depreciation cost
Maintenance cost
e. total capital cost increases by 20%
Capital: $6,000,000x1.2= $7200000
Scrap value:0
The annual maintenance cost is 5% of the capital cost:
$
MTE=5 %x7200000=360000( )
a
Operating supplies and expenses for the replacement TA: OP supplies=$250,000 pa
Depreciation: Deprec'n=10%x 7200000=720000($/a)
Savings for Replacement STA
Once Off Savings For New Compressor
Repair of old compressor
Trade in value of old compressor
Total once off savings
Cash Flow Calculations
Once Off Savings For New Compressor
Repair of old compressor 200000
Trade in value of old compressor 30000
Total once off savings 230000
Ongoing Savings For New Compressor Deprec'n 0.1
Operating cost - old compressor 176000 Tax rate 0.3
Operating cost - new compressor 160000
Operating cost savings 16000
Net Present Value Calculations
A10,i=5.5
Discount rate #1 12.50% 4 => NPV 357075
A10,i=4.1
Discount rate #2 20% 9 => NPV -1477391
IRR(by
interpolation) 14%
After tax payback 4.37
PWPI index 0.0496
Question 5. FLEET REPLACEMENT
a.
Cash Flow Calculations For Case "A"
Once Off Savings For New Compressor
Repair of old compressor 200000
Trade in value of old compressor 30000
Total once off savings 230000
Net Present Value Calculations For Case "A"
i=7.5%
Cost 1 Cost 2 1500 25100
NPC=Cost 0+ + 2
=60000+ − =39676
1+i (1+i ) 1+ 0.075 (1+ 0.075 )2
A2 , i=1.7956
NPC
EAC= =22096( pa)
A 2 ,i
Cash Flow Calculations For Case "B"
Once Off Savings For New Compressor
Repair of old compressor 200000
Trade in value of old compressor 30000
Total once off savings 230000
i=7.5%
Cost 1 Cost 2 Cost 3 1500 4550 12750
NPC=Cost 0+ + + =60000+ + − =55069
1+i (1+i )2 ( 1+i )2 1+0.075 ( 1+ 0.075 )2 ( 1=0.075 )3
A3 , i=2.6
NPC
EAC= =21176 (pa)
A 2 ,i
Cash Flow Calculations For Case "C"
Once Off Savings For New Compressor
Repair of old compressor 200000
Trade in value of old compressor 30000
Total once off savings 230000
i=7.5%
Cost 1 Cost 2 Cost 3 Cost 3
NPC=Cost 0+ + + + =72814
1+i (1+i )2 ( 1+i )3 ( 1+i )4
A 4 ,i=3.35
NPC
EAC= =21740( pa)
A 2 ,i
Once Off Savings For New Compressor
Once Off Savings For New Compressor
Repair of old compressor
As the EAC at 3yr are lowest, thus the company should replace its field vehicles at year 3.
b.
The basis of your recommendation is the equivalent annual cost.
It is not a clear cut decision as the difference of EAC among different years are not very
significant.
c. NPC (Net Present Cost) the “trade-in” contributes to the single life cycle
Once Off Savings For New Compressor
Repair of old compressor
Trade in value of old compressor
Total once off savings
Ongoing Savings For New Compressor
Operating cost - old compressor
Operating cost - new compressor
The trade in has a significant impact for the 2&3 year cases
d.
The sensitivity analysis would be used for the optimum replacement time.
Aspects to be investigated:
The trade –in in two year case and three year case
The operating cost ( accelerate at year 4) particularly later year Opex
Question 6
Cost of demolition and cleanup is estimated to be $480,000, covert to pre-tax costs
480000 480000
demolition ( pretax )= = =685714
1−tax rate 1−0.3
Revenue:
revenue=500 x 12000=6000000 $ pa
The maintenance for safety modifications:
maintenance of sasfety mods=4 % 2000000=80000 $ pa
Plant Closure
Recurrent Savings/Costs
Plant Efficiencies
Extra Disposal Costs 220,000
Net recurrent Savings 400,000
Once-off Costs
Redundancy Payouts
Demolition (Adj pretax) 480,000
labor costs=tatal wages∧oncosts=1254950($)
Net pre-tax cash revenue= revenue- total operating costs=815050 ($pa)
Plant Closure
Recurrent Savings/Costs
Plant Efficiencies 400000
Extra Disposal Costs 220000
Discount rate=12.5%
NPV=-83613
Plant Closure
Recurrent Savings/Costs
Plant Efficiencies 400000
Extra Disposal Costs 220000
Net recurrent Savings 620000
Discount rate=12.5%
NPV=-445227
As the NPVshutdown> NPVoperate, thus the plant should be shut down immediately.
b.If the safety modifications were not required, recalculate net cash revenue without the mtce for
safety mods
Net pretax cash revenue=815050+ 80000=89 5050>0
Thus, the plant stills operate without safety modifications.
