Question
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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