Tutorial Sheet 9

1. The original value of a piece of equipment is 54,000, completely installed and

ready for use. Its salvage value is estimated to be 4000 at the end of service life estimated to
be 10 years. Determine the asset (book value) of the equipment at the end 5 years using:
(a) Straight line method
(b) Text book declining-balance method
(c) Double declining method (200%) method (i.e. the declining-balance method using
fixed percentage factor giving depreciation rate equivalent to twice the minimum rate with
the straight-line method.

2. Calculate the %age factor for a class life of 5 years as presented in table of
MACRS. Note that MACRS is based on 200% declining balance for this class life with a
switch to straight-line depreciation at the time appropriate to maximize the deduction. It is
also based on salvage value being zero. The half-year convention of the first and last year
applies. Use an initial property value of $54,000.

3. A proposed manufacturing plant requires an initial FCI of $900,000 and $100,000

of working capital. It is estimated that the annual income will be $800,000 and the annual
expenses including depreciation would be $ 520,000 before income tax. A minimum annual
return of 15% before income tax is required before the on investment will be worthwhile. IT
amounts to 34% of all pre-tax profit. Determine the following:
(a) The annual % percent return on the total initial investment before income taxes.
(b) Annual % return on the total initial investment after income taxes.
(c) Annual % return on the average investment before IT assuming straight line
depreciation and zero salvage value.

4. A company has three alternative investments that are being considered. Company
policies, based on the current economic situation, dictate that a minimum annual return on the
original investment of 15 percent after taxes be predicted for any unnecessary investment.
Continuous cash flow and continuous compounding relationships are to be used. Land value
and prestart-up costs can be ignored. Use the following data to determine the following
profitability evaluation criteria:
a. Rate of return on investment
b. Payback period
c. Net return
d. Net present worth
e. Discounted cash dw rate of return
 Tutorial Sheet 10

1. The direct annual variable production costs for a plant operating at 70 % capacity are $
280,000. The sum of the annual fixed charges, overhead costs, and general expenses
is $ 200,000, and may be considered not to change with production rate. The total
annual sales are $560,000, and the product sells for $4/kg. What is the breakeven
point in kilograms of product per year and in percentage of capacity? What are the
gross annual profit (depreciation included) and net annual profit for this plant at 100%
capacity if the income tax rate is 35% of gross profit.

2. A plant produces small water pumps at the rate of P units per day. The variable
product costs per pump have been established to be $47.73 + 0.1 P1.2. The total daily
fixed charges are $1750, and all other expenses are constant at $7325 per day. If the
selling price per pump is $173, determine

(a) The daily profit at a production schedule giving the minimum cost per pump
(b) The daily profit at a production schedule giving the maximum daily profit
(c) The production schedule at the breakeven point

3. Three firms X, Y and Z manufacture the same product. The selling price is Rs. 10 per
unit of product and is equal for all the three firms. The fixed costs for firms X, Y and
Z are Rs. 1,00,000, Rs. 2,00,000 and Rs. 3,24,000 while the variable cost per unit are
Rs. 8, 5, and 4 respectively. Determine the breakeven point for all the firms. How
much profit is earned by the firms if each of them sells 70,000 units? What will be
the impact on their profit if (a) sales increases by 20% (b) decreases by 20%.
 Tutorial Sheet 11

1. At room temperature the second-order irreversible liquid-phase reaction proceeds as

follows:

A batch reactor takes 18 min to fill and empty. What percent conversion and reaction
time should we use so as to maximize the daily output of product R?

2. Tests with a plate and frame filter press, operated at constant pressure, have shown
that the relation between the volume of filtrate delivered and the time in operation
can be represented as

P2 = 18(Өf + 0.11)

Where P is the filtrate in cubic meters delivered during Өf hour of filtering time.

The cake formed in each cycle must be washed with an amount of water equal to
(1/16) times the volume of filtrate delivered per cycle. The washing rate remains
constant and is equal to (1/4) times the filtrate delivery rate at the end of the filtration.
The time required per cycle for dismantling, dumping and re-assembling is 6 h. Under
these conditions, determine the total cycle time necessary to permit the maximum
output of filtrate during each 24 h operation.

3. Consider the case of optimization of condenser. Find the cooling water flow rate, exit
temperature and heat transfer area in a condenser for optimum annual cost.
Condensate vapor is saturated at 77 oC, vapor flow rate is 2300 kg/h with latent heat
465 kJ/kg. U = 0.284 kJ/m2-s-K, 6000 h/yr of operation. Installed cost for the
condenser is $380/m2 and annual fixed charges are 20% of initial investment. The cost
of cooling water at 21oC is $2.56 per 100 m3 and Cp is 4.2 kJ/kg-K.