Question

A heat integration project results in saving 5 MM Btu/h of heating utility and 14 MM Btu/h of cooling utility. The prices of heating and cooling utilities are $4/MM Btu and $7/MM Btu respectively. The process operates for 8000 h per year. The project requires the installation of three heat exchangers, pumps, and pipeline. The FCI of the project is $4.0 MM. The working capital investment is taken as 15/85 of the FCI. The annual operating cost of the project (for pumping the integrated streams) is $0.5 MM/year. Depreciation is calculated over 10 years with no salvage value. The corporate tax rate for the project is 25% of the annual taxable gross profit. What is the payback period of the project

Answer 1

9.24 yr

Step-by-step explanation:

The payback period refers to the amount of time it takes to recover the cost of an investment. In order to find a payback period we need to go through some calculations first

Annual savings = 5 MM Btu/hr x 8,000 hr/yr x $4/MM Btu x 14 MM Btu/hr x 8,000 hr/yr x $7/MMBtu

Annual savings = $0.944 MM/yr

TCI =
`(4.0 MM)/(0.85)`

TCI = $4.7 MM

Depreciation - Annualized fixed cost =
`([4.0 - 0] )/(10)`

Depreciation - Annualized fixed cost = $0.4 MM/yr

Total cost annualized = Annualized fixed cost + Annual operating cost

Total cost annualized = 0.4 + 0.5

Total cost annualized= 0.9 MM/yr

Annual net (after-tax) profit = Annual income - Total cost annualized x (1-Tax rate + Depreciation

Annual net (after-tax) profit = $0.944 MM/yr - $0.9 MM/yr x 1 -0.25 + $0.4 MM/yr

Annual net (after-tax) profit = 0.433MM/yr

Payback period =
`(4.0)/(0.433MM/yr)`

Payback period = 9.24 yr