The table below provides information about alternative two-year ethanol production projects in which Elroy is considering investing. The sale price of ethanol is $780/tonne. Which project should Elroy choose if he wants the one with the greater discounted cash flow rate of return (DCFR)? Your answer must be based on actual pertinent calculations. A guessed answer will receive zero credit. Discounting rate for calculating present value is 0

3. (40 points) The table below provides information about alternative two-year ethanol production projects in which Elroy is considering investing. The sale price of ethanol is $780/tonne. Which project should Elroy choose if he wants the one with the greater discounted cash flow rate of return (DCFR)? Your answer must be based on actual pertinent calculations. A guessed answer will receive zero credit. Project #2 13,000 tonnes $1,400,000 Project #1 Annual production of ethanol 10,000 tonnes Purchased equipment cost for all $1,200,000 units in plant Variable production costs $50/tonne of ethanol produced Fixed charges (except for $400,000/yr depreciation) Plant overhead $250,000/yr General expenses $160,000/yr $40/tonne of ethanol produced $600,000/yr $300,000/yr $220,000/yr For both projects assume operation at full capacity in all years of operation, use straight line depreciation, take the tax rate to be 35%, and assume that working capital is recovered as lump sum at end of the project. All calculations should be carried out with discrete year-end cash flows and discrete annual compounding as usual. (A plant life of two years is clearly unrealistically short, and used only to shorten the calculations for an exam problem.)