20.(100 points total) Engineer Charlie (a close work colleague of yours) is the project lead in charge of an important evaluation, but he needs your help. The board of directors for the local charitable hospital (St. Dude's Cancer Research Center) has hired your engineering consulting company to evaluate replacing the hospital's main boiler plant. Currently, the boiler runs on liquified natural gas (LNG) and provides 1,600 psi steam, which gets reduced to 400 psi steam, and eventually to 150 psi steam. The boiler and steam distribution system services over 600 vital loads to an old, rundown wing of St. Dude's that happens to be dedicated to treating widows, orphans, veterans, and the elderly. This boiler plant is a critical piece of infrastructure, and while it's old and antiquated, the on-site technicians vehemently claim they can keep it running forever with proper maintenance. After looking into it, you learn that other similar boiler plants in similar settings failed after 20 years of service, there might be some truth to the testimony of the on-site technicians, however, because the unit at St. Dude's is pushing 35 years and, at least for the time being, it appears to be going strong. There is an on-site emergency back-up diesel generator, but it alone can only support 75 percent of the hospital's needs. The current annual budget allocation for energy production is based on the annual OPEX of the existing boiler plant, which is approximately $3.4 million. Accordingly, Chief Accountant Jatika (the Budget Director at St. Dude's) has promised to keep the long-range budget allocated for energy production constant to help finance a replacement, if that is what your engineering consulting company recommends. That is to say, if it's decided that the boiler plant should be replaced (a decision that will be based on your recommendation to Engineer Charlie), the hospital plans to use the net savings on energy production to pay for the investment. Engineer Charlie has done some of the upfront legwork for you; he's already scouted out a host of alternatives and has narrowed the list down to just three. The cost and benefit information for the top three alternatives is shown below, along with the possibility of a Do Nothing" alternative. Assuming a 15 percent interest rate and using the information in the table below, can you answer the following questions for Engineer Charlie? (NOTE: For the purposes of your evaluations, you can assume that replacement times for the alternatives will be instantaneous and not interfere with the calculation of the analysis period.) a. (5 points) In addition to the financial analyses, Engineer Charlie's table is missing some basic arithmetical information. Can you complete the information for him outlined in red boxes? b. (5 points) - What is the most appropriate analysis period to compare the alternatives? C. (10 points) What is the EUAW for each of the alternatives? d. (5 points) - What is the Payback Period/ Breakeven Point for each of the alternatives? e. (10 points) What is the NPW of each of the alternatives? f. (5 points) What is the IRR for each of the alternatives? g. (10 points) - What is the AIRR for Alt. 3 - 2 and for Alt.2 - 1? h. (5 points) Engineer Charlie tells you that the board of directors for the hospital has determined their MARR is 25%. Knowing this information and if your recommendation were made solely on Incremental Analysis, which alternative should you recommend? i. (10 points) - Based on an MARR of 25%, create a Choice Table for Engineer Charlie to examine. j. (20 points) - Based on all the analyses that you've performed and your examination of all the data, financial and non-financial, which alternative would you recommend? Also, Engineer Charlie's boss, Engineer Kristen, has asked you to present your recommendation to the board of directors, so you must be able to defend your answer thoroughly. k. (15 points) After you've made your recommendation to the board of directors, you overhear one of the board members speaking to someone privately in an adjacent room. Neither the board member nor the person with whom he is speaking is aware of your presence. Surprisingly, you learn that the board member's daughter is the lead saleswoman for a company that supplies maintenance parts for the alternative that you recommended. Thanks to your efforts, the board member's daughter was able to secure a 3-year contract with the hospital. You overhear the other person in the room congratulating the board member on his daughter's success, and in response, the board member promises to take "the whole gang" on a boating excursion with the new boat that his daughter is going to buy him. You exit the adjacent room unnoticed and go about your business. What should you do with the information you just learned? Item Do Nothing Total CAPEX Equipment Ancillary Components Labor Engineering Fees Risk Contingency Total Net Annual Savings Total Annual OPEX Fuel Replacement Parts Consumable Supplies Chemicals and Antiscalents Service Fees Labor - Junior Technicans Labor - Sr. Techs/ Foreman Labor - Engineer Annual Budget for Energy Estimated Salvage Value Useful Life in Years NPV IRR Payback Period/ Breakeven Point GHG emissions (tons-CO2 per year) Water Footprint (gallons per year) Full Power Noise Level (dB) at 20 ft. Technology Stability Risk Health & Safety Risk to Operators Technology Obsolescence Risk $O $0 $0 $0 $0 $0 $0 $3,434,200 $2,300,000 $78,000 $42,500 ? $56,700 $350,000 $250,000 $325,000 $3,434,200 N/A Should've Died Years Ago N/A Alt 1: In-kind Replacement with Newer Model $4,150,000 $1,300,000 $525,000 $1,105,000 $390,000 $830,000 $952,905 ? $1,380,000 $65,520 $35,700 $26,880 $48,195 $350,000 $250,000 $325,000 $3,434,200 $415,000 10 ? ? ? 220 142,000,000 75 VERY LOW MED LOW Alt. 2: Replace with High Alt. 3: Replace Entire Efficiency Brayton-Cycle Power Infrastructure with Co-regeneration System Hydrogen Fuel Cell Plant $4,698,438 $15,596,875 ? $5,750,000 $393,750 $1,437,500 $1,260,000 $2,875,000 $530,000 $2,415,000 $939,688 $3,119,375 $1,202,894 ? $2,231,307 $615,750 $1,352,400 $0 $45,864 $25,000 $24,990 $15,000 $18,816 $0 $33,737 $75,750 $255,500 $100,000 $175,000 $175,000 $325,000 $225,000 $3,434,200 $3,434,200 $328,891 $779,844 20 ? ? ? ? ? ? 150 0 110,000,000 47,000,000 70 LOW HIGH MED to HIGH LOW LOW UNKNOWN 40 NA N/A 243 168,000,000 90 25 VERY LOW MED to HIGH LOW 20.(100 points total) Engineer Charlie (a close work colleague of yours) is the project lead in charge of an important evaluation, but he needs your help. The board of directors for the local charitable hospital (St. Dude's Cancer Research Center) has hired your engineering consulting company to evaluate replacing the hospital's main boiler plant. Currently, the boiler runs on liquified natural gas (LNG) and provides 1,600 psi steam, which gets reduced to 400 psi steam, and eventually to 150 psi steam. The boiler and steam distribution system services over 600 vital loads to an old, rundown wing of St. Dude's that happens to be dedicated to treating widows, orphans, veterans, and the elderly. This boiler plant is a critical piece of infrastructure, and while it's old and antiquated, the on-site technicians vehemently claim they can keep it running forever with proper maintenance. After looking into it, you learn that other similar boiler plants in similar settings failed after 20 years of service, there might be some truth to the testimony of the on-site technicians, however, because the unit at St. Dude's is pushing 35 years and, at least for the time being, it appears to be going strong. There is an on-site emergency back-up diesel generator, but it alone can only support 75 percent of the hospital's needs. The current annual budget allocation for energy production is based on the annual OPEX of the existing boiler plant, which is approximately $3.4 million. Accordingly, Chief Accountant Jatika (the Budget Director at St. Dude's) has promised to keep the long-range budget allocated for energy production constant to help finance a replacement, if that is what your engineering consulting company recommends. That is to say, if it's decided that the boiler plant should be replaced (a decision that will be based on your recommendation to Engineer Charlie), the hospital plans to use the net savings on energy production to pay for the investment. Engineer Charlie has done some of the upfront legwork for you; he's already scouted out a host of alternatives and has narrowed the list down to just three. The cost and benefit information for the top three alternatives is shown below, along with the possibility of a Do Nothing" alternative. Assuming a 15 percent interest rate and using the information in the table below, can you answer the following questions for Engineer Charlie? (NOTE: For the purposes of your evaluations, you can assume that replacement times for the alternatives will be instantaneous and not interfere with the calculation of the analysis period.) a. (5 points) In addition to the financial analyses, Engineer Charlie's table is missing some basic arithmetical information. Can you complete the information for him outlined in red boxes? b. (5 points) - What is the most appropriate analysis period to compare the alternatives? C. (10 points) What is the EUAW for each of the alternatives? d. (5 points) - What is the Payback Period/ Breakeven Point for each of the alternatives? e. (10 points) What is the NPW of each of the alternatives? f. (5 points) What is the IRR for each of the alternatives? g. (10 points) - What is the AIRR for Alt. 3 - 2 and for Alt.2 - 1? h. (5 points) Engineer Charlie tells you that the board of directors for the hospital has determined their MARR is 25%. Knowing this information and if your recommendation were made solely on Incremental Analysis, which alternative should you recommend? i. (10 points) - Based on an MARR of 25%, create a Choice Table for Engineer Charlie to examine. j. (20 points) - Based on all the analyses that you've performed and your examination of all the data, financial and non-financial, which alternative would you recommend? Also, Engineer Charlie's boss, Engineer Kristen, has asked you to present your recommendation to the board of directors, so you must be able to defend your answer thoroughly. k. (15 points) After you've made your recommendation to the board of directors, you overhear one of the board members speaking to someone privately in an adjacent room. Neither the board member nor the person with whom he is speaking is aware of your presence. Surprisingly, you learn that the board member's daughter is the lead saleswoman for a company that supplies maintenance parts for the alternative that you recommended. Thanks to your efforts, the board member's daughter was able to secure a 3-year contract with the hospital. You overhear the other person in the room congratulating the board member on his daughter's success, and in response, the board member promises to take "the whole gang" on a boating excursion with the new boat that his daughter is going to buy him. You exit the adjacent room unnoticed and go about your business. What should you do with the information you just learned? Item Do Nothing Total CAPEX Equipment Ancillary Components Labor Engineering Fees Risk Contingency Total Net Annual Savings Total Annual OPEX Fuel Replacement Parts Consumable Supplies Chemicals and Antiscalents Service Fees Labor - Junior Technicans Labor - Sr. Techs/ Foreman Labor - Engineer Annual Budget for Energy Estimated Salvage Value Useful Life in Years NPV IRR Payback Period/ Breakeven Point GHG emissions (tons-CO2 per year) Water Footprint (gallons per year) Full Power Noise Level (dB) at 20 ft. Technology Stability Risk Health & Safety Risk to Operators Technology Obsolescence Risk $O $0 $0 $0 $0 $0 $0 $3,434,200 $2,300,000 $78,000 $42,500 ? $56,700 $350,000 $250,000 $325,000 $3,434,200 N/A Should've Died Years Ago N/A Alt 1: In-kind Replacement with Newer Model $4,150,000 $1,300,000 $525,000 $1,105,000 $390,000 $830,000 $952,905 ? $1,380,000 $65,520 $35,700 $26,880 $48,195 $350,000 $250,000 $325,000 $3,434,200 $415,000 10 ? ? ? 220 142,000,000 75 VERY LOW MED LOW Alt. 2: Replace with High Alt. 3: Replace Entire Efficiency Brayton-Cycle Power Infrastructure with Co-regeneration System Hydrogen Fuel Cell Plant $4,698,438 $15,596,875 ? $5,750,000 $393,750 $1,437,500 $1,260,000 $2,875,000 $530,000 $2,415,000 $939,688 $3,119,375 $1,202,894 ? $2,231,307 $615,750 $1,352,400 $0 $45,864 $25,000 $24,990 $15,000 $18,816 $0 $33,737 $75,750 $255,500 $100,000 $175,000 $175,000 $325,000 $225,000 $3,434,200 $3,434,200 $328,891 $779,844 20 ? ? ? ? ? ? 150 0 110,000,000 47,000,000 70 LOW HIGH MED to HIGH LOW LOW UNKNOWN 40 NA N/A 243 168,000,000 90 25 VERY LOW MED to HIGH LOW