GabrielS.

Gusmo
Dr.Tam
CHE175A
DueonMarch1
st
,2012

ChemicalProcessDesignProblemSet5
1. Question29ofchapter9.
Homeequityloan:$50,000.00.
10yearterm.
Interestrateof7%p.a.,compoundedmonthly.
0.05%oftheoriginalhighequityloanprincipleshouldbepaidmonthly.
Themonthlypaymentcomprisesbothloanpaymentandtheextra0.05%oftheloanprincipal.
Astocalculatemonthlypayment,theeffectivemonthlyinterestrateiscalculateasfollows.
i
c]]
= 7% 12 = u.S8S% pcr montb.
Hence,
Hontbly poymcnt = $Su,uuu.uu |(A P , u.S8S%, 1uyr 12montb yr ) + u.uS%]
= $Su,uuu.uu _
u.S8S%(1 + u.S8S%)
120
(1 + u.S8S%)
120
- 1
+u.uS% _ = $294S.2S
2. Question30ofchapter9.
Thequestioncomprisesadecisionanalysisonspending$500,000inprocessimprovements,
whereasitleadstoincreaseincashflowduringthenextfiveyears.
Year
AnnualIncreased
CashFlow
($thousands)
1 25
2 75
3 100
4 125
5 250
Ifnothingisdone,the$500,000willbeinvestedsoastoearninterest.
The option of doing nothing will only be justifiable in a range of interest rate. Therefore, the
interestratewillbecalculatedinordertoequalnetpresentvalueforbothoptions.

GabrielS.Gusmo
Dr.Tam
CHE175A
DueonMarch1
st
,2012

inJ i so tbot
$Suu,uuu = $2S,uuu (P F , i, 1) +$7S,uuu (P F , i, 2) +$1uu,uuu (P F , i, S)
+ $12S,uuu (P F , i, 4) +$2Su,uuu (P F , i, S)
Answcr: i = S.469%
Ifi = S.S%,thenetpresentvalueoftheundertakingwouldbe$499,428.52.Hence,forany
interestrategreaterthan3.469%,theoptionofdoingnothingandleavethe$500,000inthe
investmentportfolioismorecosteffective.
3. Question14ofchapter10.
Twodifferentnewchemicalplantswithinitialfixedcapitalinvestmentof$15mihave
differentcashflows.
Year
Process1
($million/yr)
Process2
($million/yr)
1 3.0 5.0
2 8.0 5.0
3 7.0 5.0
4 5.0 5.0
5 2.0 5.0
a. NetPresentvalueofbothplantsforinterestratesof6%and18%:
Process1
NPw
1,6%
= |$S.u (P F , 6%, 1) + $8.u (P F , 6%, 2) +$7.u (P F , 6%, S)
+ $S.u (P F , 6%, 4) + $2.u (P F , 6%, S) - $1S.u] 1u
6
= $, 282, 479. 84
NPw
1,18%
= |$S.u (P F , 18%, 1) + $8.u (P F , 18%, 2)
+ $7.u (P F , 18%, S) +$S.u (P F , 18%, 4)
+ $2.u (P F , 18%, S) -$1S.u] 1u
6
= $1, 1, 427. 24

GabrielS.Gusmo
Dr.Tam
CHE175A
DueonMarch1
st
,2012

Process2
NPw
2,6%
= |$S.u (P A , 6%, S) - $1S.u] 1u
6
= $, 1, 818. 93
NPw
2,18%
= |$S.u (P A , 18%, S) -$1S.u] 1u
6
= $35, 885. 1
IfonesubjectstheiranalysismerelythroughNPV,asthecashflowisentirelypositive
forbothcases,theinitialinvestmentisthesameandprocess1presentsgreaterNPV
atdifferentinterestrates,process1shouldberecommendedasthebestalternative.
b. DCFRORofeachplant
By definition, DCFROR, discounted cash flow rate of return, is the interest rate at
which the NPV of the project is zero. In this case, the sum of all cash inflow must be
equaltotheinitialinvestment.
Process1(SolvedusingMathcad)
inJ i so tbot |$S.u (P F , i, 1) + $8.u (P F , i, 2) + $7.u (P F , i, S)
+ $S.u (P F , i, 4) +$2.u (P F , i, S) - $1S.u] 1u
6
= $u.uu
Answcr: CFR0R
1
= 2u.994%
Process2
inJ i so tbot |$S.u (P A , i, S) -$1S.u] 1u
6
= $u.uu
Answcr: CFR0R
2
= 19.8S8%
Hence, process 1 still persists as the most favorable, for its threshold, in term of the
interest rate it can handle and remain with a positive NPV, is farther than the one
from process 2. In other words, if one intends to deploy a project which the
considered return rate is in between both DCFRORs, process 1 will remain above
breakevenpoint,whileprocess2willnotbefeasible.
c. PBP,nondiscountedpaybackperiod:
The payback period criterion of evaluating project feasibilities as a nondiscounted
method relies only on the moment at which the project pays out the amount of
depreciable capital that was invested (fixed capital investment), summing cash flows
atdifferentmomentswithoutconsideringthetimevalueofmoney.Forthisreason,it
GabrielS.Gusmo
Dr.Tam
CHE175A
DueonMarch1
st
,2012

shouldbeonlyusedwhencomparingalternativeswhichcashflowarecomprehended
inashorttime,thusreducingtheeffectsofnotconsideringmoneydepreciation.
Process 1 pays off during the third year. It can be defined when it will exactly
compensatetheamountinvestedduetothediscretecharacterofdata.
In ycor 2, -$1S 1u
6
+ $8 1u
6
+ $S 1u
6
= -$4 1u
6

In ycor S, -$1S 1u
6
+ $8 1u
6
+ $S 1u
6
+$7 1u
6
= $S 1u
6

Process2timerequiredtorecoverthefixedcapitalinvestedisexactly3years.
Asitwassaidbefore,lacksoffiguresinbetweencashflowsdomaketheanalysisloose
itspurpose.However,ifitisknownthatafteryear3,process1willhavealreadypaid
out,itshouldbeconsideredthebestoption.
d. The final conclusions were all the same. However, nondiscounted methods are
usually not considered as to define which undertaking one should go for, when it
involves large capital. The NPV is a useful tool to assess feasibility in longterm
investment projects; furthermore, DCFROR is also an instrument to help in decision
making,howeverittellstheinvestortheriskheisuptotakeifendeavoringtowardsa
project.Thereisnoinformationonifbothprojectsaremutuallyexclusives,yet,evenif
they were, incremental analysis would aggregate any direction given that both
projectshavethesameinitialcapitalinvestment.
Question21ofchapter10.
Project
CapitalRequired$10
6

(inyear0)
Aftertax,yearlycashflow$10
6

(duringyrs110)
A 80 11
B 100 14
C 120 16
The option of going for none of the projects leads the company to invest its money on long
termsbondsthatyields5.5%p.a.liquid.
Conditions
Ceilingforinvestmentis$250,000,000.00
ProjectLifeof10years
GabrielS.Gusmo
Dr.Tam
CHE175A
DueonMarch1
st
,2012

Theproblemconfigurationisinherentlymadetobestudiedthroughincrementalanalysis,due
to the different project alternatives and the option of investing the leftover capital in long
term bonds. As to compare projects, firstly, NPV (at 5.5% p.a.) is going to be calculated for
eachprojectseparately.
NPI
A
= $11 1u
6
(P A , S.S%, 1u) -$8u 1u
6
= $2,91S,884.11
NPI
B
= $14 1u
6
(P A , S.S%, 1u) -$1uu 1u
6
= $S,S26,761.6u
NPI
C
= $16 1u
6
(P A , S.S%, 1u) -$12u 1u
6
= $6u2,u1S.26
KnowingthatallprojectshavepositiveNPVandnothingissaidregardingselectingmorethan
one project, it would be worth raising the investment ceiling from $250 million to $300
million, leading to a total NPV of $9,042,658.97. However, one should consider the risk
intrinsic of each process, whereas projects D DCFROR is closer to the interest paid to long
termbonds.
CFR0R
A
= i or $11 1u
6
(P A , i, 1u) = $8u 1u
6
CFR0R
A
= 6.2S%
CFR0R
B
= i or $14 1u
6
(P A , S.S%, 1u) = 1uu 1u
6
CFR0R
B
= 6.64%
CFR0R
C
= i or $16 1u
6
(P A , S.S%, 1u) = $12u 1u
6
CFR0R
C
= S.6u%
4. References
I. Turton,R.;Bailie,R.C.;Whiting,W.B.;Shaeiwitz,J.A.;Anaysis,SynthesisandDesign
ofChemicalProcesses3
rd
ed.;2010byPrenticeHallPTR.
II. Mathcad15.0Copyright2010ParametricTechnologyCorporation.
III. MicrosoftExcel2010,MicrosoftCorporation.