TUTORIAL 6

PROFITABILITY ANALYSIS
YEAR 3
CHEMICAL ENGINEERING DEPARTMENT
THE BRITISH UNIVERSITY IN EGYPT (BUE)
PREPARED BY: ENG. OMNIA HAMDY
UNDER SUPERVISION OF: PROF. MOHAMED AMIN EL-SHAHIR
PROBLEMS

 Problem 3
A company is seeking to invest approximately $120 x 106 in new projects. After extensive research and preliminary
design work, three projects have emerged as candidates for construction. The minimum acceptable internal discount
(interest ) rate, after-tax, has been set at 10%. The after-tax cash-flow information for the three projects using a ten-year
operating life is as follows (values in millions)

For this example it is assumed that the costs of land, working capital, and salvage value are zero.
Furthermore, it is assumed that the initial investment occurs at time=0, and the yearly annual cash flows occur at the end
of each of the ten years of plant operation.
Determine the following
a. The NPV for each project.
b. The DCFROR for each project.
c. Determine the NPV and the DCFROR for each increment of investment.
PROBLEMS (CONT.)
 Problem 4

In the final design stage of a ptoject, the question has arisen as to wether to use a water cooled exchanger or
an air cooled exchanger in the overhead condenser loop of a distillation tower. The information available on
the two pieces of equipment is provided as follows:

Both pieces of equipment have service lives of 12 years. For an internal rate of return of 8%, which piece of
equipment represents the better choice?
PROBLEMS (CONT.)
 Problem 5

During the design of a new project, a decision must be made regarding which type of pump should be used
for a corrosive service. The options are as follows:

Assume a discount rate of 8%.

 Compare The two pumps using EAOC and Common denominator method.
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