A plastic manufacturing company owns and operates a

polypropylene production facility #4823

A plastic-manufacturing company owns and operates a polypropylene production facility that
converts the propylene from one of its cracking facilities to polypropylene plastics for outside
sale. The polypropylene production facility is currently forced to operate at less than capacity
due to an insufficiency of propylene production capacity in its hydrocarbon cracking facility. The
chemical engineers are considering alternatives for supplying additional propylene to the
polypropylene production facility. Two feasible alternatives are to build a pipeline to the nearest
outside supply source and to provide additional propylene by truck from an outside source. The
engineers also gathered the following projected cost estimates.• Future costs for purchased
propylene excluding delivery: $0,215 per lb.• Cost of pipeline construction: $200,000 per
pipeline mile.• Estimated length of pipeline: 180 miles.• Transportation costs by tank truck:
$0.05 per lb, utilizing a common carrier.• Pipeline operating costs: $0,005 per lb, excluding
capital costs.• Projected additional propylene needs: 180 million lb per year.• Projected project
life: 20 years.• Estimated salvage value of the pipeline: 8% of the installed costs.Determine the
propylene cost per pound under each option if the firm's MARR is 18%. Which option is more
economical?View Solution:
A plastic manufacturing company owns and operates a polypropylene production facility

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