A plastic-manufacturing company owns and operates a polypropylene-production facility that converts the propylene from one of its cracking facilities to polypropylene plastics for outside sale. The polypropylene-production facility is currently forced to operate at less than capacity due to lack of enough propylene-production capacity in its hydrocarbon-cracking facility. The chemical engineers are considering alternatives for supplying additional propylene to the polypropylene productionfacility. Some of the feasible alternatives are as follows:Option 1: Build a pipeline to the nearest outs.ide supply source.Option 2: Provide additional propylene by truck from an outside source.The engineers also gathered the following projected cost estimates:Hi Future costs for purchased propylene, excluding delivery: $0.215 per lb1. Cost of pipeline construction: $200,000 per pipeline mile2. Estimated length of pipeline: 180 miles3. Transportation costs by tank truck: $0.05 per lb, using a common carrier4. Pipeline operating costs: $0.005 per lb, excluding capital costsOil Projected additional propylene needs: 180 million lbs per year5. Projected project life: 20 years6. Estimated salvage value of the pipeline: 8% of the installed costsDetermine the propylene cost per pound under each option if the firm's MARR is 18%. Which option is more economical?
A plastic-manufacturing company owns and operates a polypropylene-production facility that converts the propylene from one of its cracking facilities to polypropylene plastics for outside sale. The polypropylene-production facility is currently forced to operate at less than capacity due to lack of enough propylene-production capacity in its hydrocarbon-cracking facility. The chemical engineers are considering alternatives for supplying additional propylene to the polypropylene production
facility. Some of the feasible alternatives are as follows:
Option 1: Build a pipeline to the nearest outs.ide supply source.
Option 2: Provide additional propylene by truck from an outside source.
The engineers also gathered the following projected cost estimates:
Hi Future costs for purchased propylene, excluding delivery: $0.215 per lb
1. Cost of pipeline construction: $200,000 per pipeline mile
2. Estimated length of pipeline: 180 miles
3. Transportation costs by tank truck: $0.05 per lb, using a common carrier
4. Pipeline operating costs: $0.005 per lb, excluding capital costs
Oil Projected additional propylene needs: 180 million lbs per year
5. Projected project life: 20 years
6. Estimated salvage value of the pipeline: 8% of the installed costs
Determine the propylene cost per pound under each option if the firm's MARR is 18%. Which option is more economical?
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