A contractor operates a rock crusher and stores the material until needed in an adjacent stockpile area. The stockpile area is unpaved, and some of the produced material is contaminated by the sub-grade and cannot be used. The estimated stockpile losses are shown in the Table 1. This equates to a combined loss of 8% each year.

The contractor is considering paving the stockpile area to reduce the loss of material. Paving the stockpile area would reduce the losses due to contamination to about 2%. The crusher produces 250,000 tons/year at a cost of $1.50/ton. The new paving should last 10 years, and there is no salvage value.

The paving will cover 4.56 acres. The previous stockpile losses will serve as sub-grade and base courses for the new surfacing. A 3ʺ thick surface will require 3700 tons of asphaltic concrete, which costs $20/ton installed. The engineering and site work involve a one-time cost of about $5000. The surface requires routine maintenance costing about $1000/year.

Table 2 shows the uncertainty (lower and upper limits) of the data estimated by the contractor to evaluate the feasibility of paving the stockpile area. Assuming the contractor has a minimum accepted rate of return (MARR) of 12%, answer the following questions.

For each of the 7 variables in Table 2, use IRR to graph NPV vs. the value of this variable, as the variable ranges between the limits you derive from the table(use 10% intervals). (hint: for each graph, use estimated values of the other factors, e.g., use values ranging between 5 to 20 years for the economic life on x-axis versus the NPV on the y-axis assuming average values for the other variables).

  

Table 1 Current Stockpile Losses Material Size Loss 1/4" minus 12%-20% 3/4" minus & 3/4" #4 8%-15% 1" minus & 1" x 3/4" 4%-10%