Question 1 A Birmingham based forge uses a large amount of heat energy to produce steel products which is purchased at a rate of 2.2 p/kWh. The company wishes to investigate the financial viability of investing in a heat recuperation system costing 1000. In order to do this, the company performs a CUSUM analysis. For 5 weeks the company collected data about the production and energy consumption of the forge without the heat recuperation device installed. This data is presented in table Qla. Week Production Energy Number (tonnes) (MWh) 6 17.9 2 7 20.5 8 22.5 4 6 18.2 5 7 19.8 Table Q1a 11 3 During the first five weeks it was noted that the relationship between production and energy consumption followed the following linear relationship: Energy (MWh) = 2.1 x Production(tonnes) + 5.5 For the following 5 weeks the recuperation device was installed and the production and energy consumption data was recorded. This data is shown in table Q1b Week Number Production (tonnes) 7 6 Energy (MWh) 19.1 22.1 23.4 7 8 8 10 9 9 22.8 15.4 10 5 Table Q1b a) What is meant by the term CUSUM and why is it used? b) Construct a CUSUM table showing the prediction, deviation and CUSUM column including all units. c) Calculate the payback period for the heat recuperation system. d) Is payback an appropriate method to assess this investment and why? Question 1 A Birmingham based forge uses a large amount of heat energy to produce steel products which is purchased at a rate of 2.2 p/kWh. The company wishes to investigate the financial viability of investing in a heat recuperation system costing 1000. In order to do this, the company performs a CUSUM analysis. For 5 weeks the company collected data about the production and energy consumption of the forge without the heat recuperation device installed. This data is presented in table Qla. Week Production Energy Number (tonnes) (MWh) 6 17.9 2 7 20.5 8 22.5 4 6 18.2 5 7 19.8 Table Q1a 11 3 During the first five weeks it was noted that the relationship between production and energy consumption followed the following linear relationship: Energy (MWh) = 2.1 x Production(tonnes) + 5.5 For the following 5 weeks the recuperation device was installed and the production and energy consumption data was recorded. This data is shown in table Q1b Week Number Production (tonnes) 7 6 Energy (MWh) 19.1 22.1 23.4 7 8 8 10 9 9 22.8 15.4 10 5 Table Q1b a) What is meant by the term CUSUM and why is it used? b) Construct a CUSUM table showing the prediction, deviation and CUSUM column including all units. c) Calculate the payback period for the heat recuperation system. d) Is payback an appropriate method to assess this investment and why
