Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please show all work The Charvon oil company is planning to make a large investment in coal-to-liquids (CTL) gasoline. The end product will be a

image text in transcribed

please show all work

The Charvon oil company is planning to make a large investment in coal-to-liquids (CTL) gasoline. The end product will be a perfect substitute for gasoline made from petroleum, but the feedstock will be coal instead of oil. Two technologies are available to the Charvon company. The first is called indirect CTL, where the coal is gasified prior to being liquefied. The second is called direct CTL, where the coal is dissolved in a solvent, and the resulting liquid is processed into gasoline. The Charvon company has hired you as a consultant to help them decide which technology they should choose. Charvon expects to produce one million gallons of CTL gasoline for five years following construction of the plant, and they can sell the gasoline for $3 per gallon. The capital cost of indirect CTL is $9 million and operating costs for indirect CTL (labor, fuel, and maintenance) are $600,000 per year. The capital cost of direct CTL is $9.45 million and operating costs for direct CTL are $500,000 per year. Assuming that Charvon uses an annual discount rate of 10% for all costs and revenues, what is the Net Present Value (NPV) of each CTL technology after five years of production Which should Charvon choose? Next, assume that capital costs, operating costs, and the gasoline price can all vary by 25%. Create a tornado plot for each option displaying the sensitivity to changes in these variables

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions