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An engineer in charge of the design of a plant must choose either a batch or a continuous system. The batch system offers a lower

An engineer in charge of the design of a plant must choose either a batch or a continuous system. The batch system offers a lower initial outlay but, because of higher labor requirements, exhibits a higher operating cost. The cash flows relevant to this decision have been estimated as follows:

Year 0

Years 1-10 (after taxes)

Discounted cash flow rate of return

Net present worth at 10%

Batch system

-$20,000

$5,600/year

25%

$14,400

Continuous system

-$30,000

$7650/year

22%

$17,000

Check the values given for the discounted cash flow rate of return and net present worth. If the company requires a minimum rate of return of 10 percent, which system should be chosen?

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