School of Natural Resourses Engineering and Management

Energy Engineering Department

Name: Hamza Battikhi

ID: 20171203049
Section: 2
Date: 28/4/2020
Abstract:
This study has been done to evaluate a project and determine if the
project is feasible or not. The project is about building a PV Pannels
factory. Six different methods were used in this study to evaluate the
project and the final decision was that the project is not feasible and
not good for investment.
Introduction:
The project is about an investment in a factory for PV Panels. The
capital cost will be $30 million, and the earnings are $12 million yearly.
The MARR for the project must be 30% so we can consider the project
good for investment. The study for the project will be for 5 years. In this
report I will display and discuss the work breakdown structure and use
six different methods to evaluate this project and determine if it is good
for investment or not, the six methods must lead to the same result if
the project is feasible or not.

Methods:
1. Present Worth (PW): The present worth (PW) is found by discounting all cash inflows
and outflows to the present time at an interest rate that is generally the MARR.
2. Future Worth (FW): it is based on the equivalent worth of all cash flows at the end of
the study period at an interest rate that is generally the MARR.
3. Annual Worth (AW): is an equal periodic series of dollar amounts that is equivalent
to the cash inflows and outflows, at an interest rate that is generally the MARR
4. Internal rate of return (IRR) : The internal rate of return (IRR) method is the most
widely used rate of return method for performing engineering economic analysis
5. External rate of return (ERR): The ERR takes into account the interest rate, ε,
external to a project at which net cash flows generated (or required) by a project over
its life can be reinvested (or borrowed)
6. Payback Period: the number of years required for cash inflows to just equal cash
outflows.
Work Breakdown Structure:

PV panels
factory

construction costs

foundations materials machines License

Labor Operating costs maintenance
30,000$ 300,000$ 1M$ 3000$

Electricity Routine
roof Direct labor Indirect labor
200,000$ maintenance
60,000$
windows workers Admin Water
Emergency
2000$ 100,000$ 36,000$ 160,000$

Cooling
Engineers security
systems
380,000$ 24,000$
600,000$

walls Cleaning staff

2000$ 6000$

floor
2000$

12M$ 12M$ 12M$ 12M$ 12M$

30M$ 360,000$ 60,000$ 480,000$ 66,000$

Evaluation:
1. Present Worth
PW= -P + A (P/A, MARR%, N)
PW= -30,000,000 + 12,000,000*(P/A, 30%, 5)
PW= -30,000,000 + 12,000,000*2.4355
PW= -774,000$
2. Future Worth
FW= -P (F/P, MARR%, N) + A (F/A, MARR%, N)
FW= -30,000,000* (F/P, 30%, 5) + 12,000,000*(F/A, 30%, 5)
FW= -30,000,000* 3.71293+12,000,000*9.0431
FW= -2,870,700$

3. Annual Worth
AW= -P (A/P, MARR%, N) + A
AW= -30,000,000*(A/P, 30%, 5) + 12,000,000
AW= -30,000,000*0.4105 + 12,000,000
AW= -315,000 $

4. Internal rate of return (IRR)

∑ Rk(P/F, i`%, k) = ∑ Ek(P/F, i`%, k)
30,000,000=12,000,000(P/A,i,5)
i`%= 28.649%

5. External rate of rate (ERR)

30,000,000(F/P, i`%, 5) = 12,000,000(F/A, 30%, 5)
(F/A, 30%, 5) = 9.0431
i`% = 29.32%

6. Payback Period
∑(Rk – Ek) – I ≥ 0
K=1
∑12,000,000(P/A, 30% , K) -30,000,000 >=0
K=1
Payback Period = 2.5 Years
Results and discussion:
The present worth is -774,000$, the future worth is
-2,870,700$ and the Annual worth is -315,000 $, and as we got a
negative value for PW, FW and AW, this means that the project is
infeasible. Also, the internal rate of return is 28.649% and the external
rate of return is 29.32% both are less than the MARR which is 30% and
this leads us to the same result that the project is infeasible. So the
project is non profitable.

Conclusion:
In this study, we used some methods to evaluate a project and see if it
is feasible, and depending on the numbers we got, I can say that the
project is not good for investment. The period is 5 years and the
payback period are 2.5 years but the numbers shows that the project
will be losing. So the investment in such a project is not a good idea.

References:
Cooling systems. (n.d.). Retrieved April 26, 2020, from
https://aavital.co.il/cooling-systems/?lang=en
Bragg, S. (2018, April 4). Factory cost. Retrieved April 26, 2020, from
https://www.accountingtools.com/articles/what-is-factory-cost.html
William G. Sullivan, Elin M. Wicks, Patrick Koelling, "Energy Economy", 16th , 2014