The plant engineer of a major food processing corporation is evaluating alternatives to supply electricity to the plant. He will pay $3 million for electricity purchased from the local utility at the end of the first year and estimates that this cost will increase thereafter at $300,000 per year. He desires to know if he should build a 4000-kilowatt power plant. His operating costs (other than fuel) for such a power plant are estimated to be $130,000 per year. He is considering two alternative fuels: a. Wood: Installed cost of the power plant is $1200/kW. Fuel consumption is 30,000 tons per year. Fuel cost for the first year is $20/ton and is estimated to increase at a rate of $2/ton for each year after the first. No salvage value. b. Oil: Installed cost is $1000/kW. Fuel consumption is 46,000 barrels per year. Fuel cost is $34 per barrel for the first year and is estimated to increase at $1/barrel per year for each year after the first. No salvage value. If interest is 12%, and the analysis period is 10 years, which alternative should the engineer choose? Solve the problem by equivalent uniform annual cost analysis (EUAC).
The plant engineer of a major food processing corporation is evaluating alternatives to supply electricity to the plant. He will pay $3 million for electricity purchased from the local utility at the end of the first year and estimates that this cost will increase thereafter at $300,000 per year. He desires to know if he should build a 4000-kilowatt power plant. His operating costs (other than fuel) for such a power plant are estimated to be $130,000 per year. He is considering two alternative fuels: a. Wood: Installed cost of the power plant is $1200/kW. Fuel consumption is 30,000 tons per year. Fuel cost for the first year is $20/ton and is estimated to increase at a rate of $2/ton for each year after the first. No salvage value. b. Oil: Installed cost is $1000/kW. Fuel consumption is 46,000 barrels per year. Fuel cost is $34 per barrel for the first year and is estimated to increase at $1/barrel per year for each year after the first. No salvage value. If interest is 12%, and the analysis period is 10 years, which alternative should the engineer choose? Solve the problem by equivalent uniform annual cost analysis (EUAC).
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