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A plastic - manufacturing company owns and operates a polypropylene production facility that converts the propylene from one of its cracking facilities to polypropylene plastics
A plasticmanufacturing company owns and operates a
polypropylene production facility that converts the propylene from
one of its cracking facilities to polypropylene plastics for outside
sale. The polypropylene production facility is currently forced to
operate at less than capacity due to an insufficiency of propylene
production capacity in its hydrocarbon cracking facility. The
chemical engineers are considering alternatives for supplying
additional propylene to the polypropylene production facility. Two
feasible alternatives are to build a pipeline to the nearest outside
supply source and to provide additional propylene by truck from
an outside source. The engineers also gathered the following
projected cost estimates:
Future costs for purchased propylene excluding delivery:
$
Cost of pipeline construction: $pipeline
Estimated length of pipeline:
Transportation costs by tank truck: utilizing a common
carrier.
Pipeline operating costs: $ excluding capital costs.
Projected additional propylene needs: per year.
Projected project life: years.
Estimated salvage value of the pipeline: of the installed
costs.
Determine the propylene cost per kilogram under each option if
the firm's MARR is Which option is more economical?
Suppose:
Option : to build a pipeline to the nearest outside supply source.
Option : to provide additional propylene by truck from an outside
source.
Equivalent Annual Cost:
AEC$
AEC$
Propylene cost per kilogram:
cents
cents
More economical option:
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