An energy-conservation study has produced a base case that is a heat-recovery project. The TCI is $5.0 MM and the project provid
es an annual net profit of $1.0 MM year. Two add-on alternatives are proposed as possible modifications to the base case:
(i) The addition of an additional heat exchanger, which will cost an additional $2.0 MM of TCI and will result in a total annual net profit of $1.8 MM/year for the combined base case and the additional heat exchanger.
(ii) The addition of a steam turbine for cogeneration of heat and power. The turbine coupled with the heat-recovery network and the additional heat exchanger. The turbine will cost $4.0 MM in addition to the TCI of the base-case heat-recovery network and the additional heat exchanger. It will result in a total annual net profit of $2.2 MM/year for the combined base case, additional exchanger, and turbine.
The company has a 15% per year minimum hurdle rate. Which projects should you recommend?
(i) The addition of an additional heat exchanger, which will cost an additional $2.0 MM of TCI and will result in a total annual net profit of $1.8 MM/year for the combined base case and the additional heat exchanger.
(ii) The addition of a steam turbine for cogeneration of heat and power. The turbine coupled with the heat-recovery network and the additional heat exchanger. The turbine will cost $4.0 MM in addition to the TCI of the base-case heat-recovery network and the additional heat exchanger. It will result in a total annual net profit of $2.2 MM/year for the combined base case, additional exchanger, and turbine.
The company has a 15% per year minimum hurdle rate. Which projects should you recommend?
1 answer:
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