HW #7 Engineering Economic Analysis (100 pts) Due November 9, 2017 The projected costs for a new plant are given below (all numbers are in Millions) Land Cost $10 Fixed Capital Investment $90 (S60 at end of year 1, and $30 at end of year 2) Working Capital $20 (at start-up) Start-up at end of year 2 Revenue from sales are $80 for the first year, and $100 for the rest of project lifetime. Cost of manufacturing (without depreciation)-S50 Tax rate = 40% Depreciation method-Current MACRS over 5 years Length of time over which profitability is to be assessed 10 years after start-up Internal rate of return-10 % p.a. (1). For this project, please do the following a. Draw a cumulative (non-discounted) after-tax cash flow diagram. b. From Part (a), calculate the following non-discounted profitability criteria for the project: (i) Cumulative cash position and cumulative cash ratio (ii) Payback period (ili) Rate of return on investment c. Draw a cumulative (discounted) after-tax cash flow diagram. d. From Part (c), calculate the following discounted profitability criteria for the project: (i) Net present value and net present value ratio (ii) Discounted payback period (iii) Discounted cash flow rate of return (DCFROR (2). After 5 years' operation, two pieces of equipment are being considered for the same service to be added to the existing plant, the installed costs and yearly operating costs associated with each piece of the equipment are as follows Costs estment $8500 $1200 $4500 life If the internal rate is 15% pa, which equipment do you recommend using equivalent annual operating cost method? a. b. For both equipment, there are two material options, leading to different yearly saving. Please determine the option for the chosen piece of equipment with the same internal interest rate of 15% and 5 year operation? vestment costs Yearly savin A-2 B-1 B-2 $4500 6000 9000 $12,000 S2000 $3000 S3200 $4000