Addis Ababa Science & Technology University

Department of Chemical Engineering

Assignment and worksheet on Plant Design and Economics (ChEg5193)

1. Suppose that two equally sound investments can be made. One of these requires
$100,000 of capital and will yield a profit of $lO,OOO/year, and the second requires
$1 million of capital and will yield $25,0OO/year. Compare the yearly profit and the
annual rate of return on both investments?
2. A proposed manufacturing plant requires an initial fixed-capital investment of
$900,000 and $100,000 of working capital. It is estimated that the annual income will
be $800,000 and the annual expenses including depreciation will be $520,000 before
income taxes. A minimum annual return of 15 percent before income taxes is required
before the investment will be worthwhile. Income taxes amount to 34 percent of all
pre-tax profits. Determine the following:
(a) The annual percent return on the total initial investment before income taxes.
(b) The annual percent return on the total initial investment after income taxes.
(c) The annual percent return on the total initial investment before income taxes based on
capital recovery with minimum profit.
(d) The annual percent return on the average investment before income taxes assuming
straight-line depreciation and zero salvage value
3. For the nominal annual interest rate of 8%,find the value of $10,000 deposit after 6 years
with continuous compounding, daily compounding and quarterly compounding?

4. A company is considering replacement of an existing reactor with new one the data is as
follows:

(1).Original installed cost of existing reactor:$1,500,000 (2).Annual Operating cost: $250,000

(3). Time in service:5 years (4). Estimated remaining life time:3 years (5).Resale value at
current condition:$5,000 (6) Installed cost of new reactor:$2,200,000 (7).Annual operating
cost:200,000 (8)Estimated life time:10 years (9).Salvage Value: $250,000 All other costs
(labor, maintenance, insurance etc.) for the two reactor is same. depreciation can be
calculated using SLM Company expects a minimum annual return of 15% on additional
investment for reactor replacement. With analysis of economic data for two reactors,
determine whether the reactor replacement meets company’s expectation?

5. After conceptual design and estimates of chemical plant, the following expenditure and
revenues are estimated after the plant has achieved desired production rate.

Total capital investment:$ 100,000,000, Working capital:$ 10,000,000 ,Annual sales:$

80,000,000 and Annual expenditure (total production cost):$ 20,000,000

Assume straight line depreciation over 10 years project life and tax rate of 35%,determine

A. The return on investment after taxes

B. The payback period

6.