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Economics

Economics. Section 5 Dr.Hoda’s part Alternative investment Sheet 6. Alternative investments. It is the ability of choose between alternatives. The more expensive alternative should give savings to be better than the cheapest. Where: ROII is the return on incremental investment .

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Economics

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  1. Economics Section 5Dr.Hoda’s part Alternative investment Sheet 6 Eng. RedaZein

  2. Alternative investments • It is the ability of choose between alternatives. • The more expensive alternative should give savings to be better than the cheapest. • Where: ROII is the return on incremental investment.

  3. Alternative investments • As ROII or ROI (return on investment) increases, the pay back time decreases. • Note that: To be able to compare between alternatives you have to : 1- Make sure that all alternatives give the same function. 2- Begin with the cheapest one.

  4. Alternative investments • I f the more expensive alternative does not give any saving so no need to compare. • ROII ranges from 5 to 30 % and the typical value is 15 %.

  5. Let’s begin our final sheet :D

  6. 2) A heat exchanger has been designed and insulation is being considered for the unit. The insulation can be obtained in thickness of 1, 2, 3 or 4 inch. The following data have been determined for the different insulation thickness: What thickness of insulation should be used? The value of heat is 30 cents/10^6 Btu. An annual return of 15% on the fixed-capital investment is required for any capital put into this type of investment. The exchanger operates 300 days per year (Ans.: 2” is accepted)

  7. 4) A chemical company is considering replacing reactor with a modernized continuous reactor. The old unit cost $40,000 when new 5 years ago, and depreciation have been charged on a straight line basis using an estimated service life of 15 years and final salvage value of $1,000. It is now estimated that the unit has a remaining service life of 10years and a final salvage value of $1,000. The new unit would cost now $70,000 and would result on an increase of $5,000 in the gross annual income. It would permit a labor savings of $7,000 per year.

  8. Additional costs for taxes and insurance would be $1,000 per year. The service life is estimated to be 12 years with a final salvage value of $1,000. All costs other than those for labor, insurance, taxes and depreciation may be assumed to be the same for both units. The old unit can now be sold for $5,000. If the minimum required return on investment is 15%, Should the replacement be made? (Ans.: Do not make the replacement )

  9. 5) The owner of a small antifreeze plant has a small canning unit which cost him $5,000 when he purchased it 10 years ago. The unit has been completely depreciated, but the owner estimates that it will still give good service for 5 more years. At the end of 5 years the unit will be worth a junk value of $100. The owner now has an opportunity to buy a more efficient canning unit for $6,000 having an estimated service life of 10years and zero salvage or junk value. The new unit will reduce annual labor and maintenance costs by $1,000 and increase annual expenses for taxes and insurance by $100. All other expenses except depreciation would be unchanged. I f the old canning unit can be sold for $6,00, What return on investment would the owner receive if he decides to make the replacement. (Ans.: ROII=7.4%)

  10. 7) A mixer settler extraction train to be built to extract an aqueous solution of valuable metal. At this point in the process the metal is valued at 20 cents/Ib. Any metal not extracted is lost to a tailing pond. From the information given, specify the optimum economical extraction stages, and state your reason. Feed: 10^6 Ibmetal/year, equipment life: 5 years . (Ans.: 4 stages)

  11. Any questions? 

  12. I ENJOYED TEACHING WITH YOU <3

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