ENGINEERING ECO ANALYSIS W/STUDY GUIDE
ENGINEERING ECO ANALYSIS W/STUDY GUIDE
13th Edition
ISBN: 9780190693053
Author: NEWNAN
Publisher: Oxford University Press
Question
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Chapter 6, Problem 43P
To determine

(a)

The methods to be used to produce the biofuels.

Expert Solution
Check Mark

Answer to Problem 43P

The algae are good for the making of biofuels.

Explanation of Solution

Given:

Number of barrels of ethanol to be sold per year is 150000.

The time period is 10 years beginning in the end of year 4.

The oil firm will pay NPB $10M annually beginning from EOY0 to EOY3 and then $110 per barrel.

The NPB uses an interest rate of 15%.

Annual increase in O&M cost is 2%.

Annual increase in raw material cost is 3%.

Calculation:

Calculate the revenue earned in the next 10 years.

Revenueearned=$110×150000=$16500000

Calculate the annual amount.

A=$10000000(AP,i%,n)+$16500000(AP,i%,n)=$10000000(AP,15%,3)+$16500000(AP,15%,10) ...... (I)

Write the equation for the factor (AP,i%,n).

(AP,i%,n)=[i(1+i)n(1+i)n1] ...... (II)

Here, annual cost is A, present worth is P, rate of interest is i, and number of year is n.

Calculate the factor (AP,15%,3).

Substitute 15% i and 3 years for n in Equation (II).

(AP,15%,3)=[0.15( 1+0.15)3( 1+0.15)31]=0.4380

Calculate the factor (AP,15%,10)

Substitute 15% i and 10 years for n in Equation (II).

(AP,15%,10)=[0.15( 1+0.15)10( 1+0.15)101]=0.1993

Substitute 0.4380 for (AP,15%,3), and 0.1993 for (AP,15%,10) in Equation (I).

A=$10000000×0.4380+$16500000×0.1993=$7668450

Therefore, the benefit from payment received for both alternatives is $7668450.

Alternative Corn

Calculate the annual cost.

A=F(AF,i%,n)A=F[i( 1+i)n1] ...... (III)

Here, future value is F.

Substitute $3000000 for F, 15% for i, and 13 years for n in Equation (III).

A=$3000000[0.15( 0.15+1)131]=$3000000×0.0291=$87300

Therefore, salvage value will be $87300 after 13 years.

Calculate the equivalent uniform annual benefit (EUAB) which is the sum of total revenue earned during the first three years, next ten year plus the salvage value.

EUAB=$7668450+87300=$7755750

It is required to calculate the annuity value of the corn alternative after 13 years.

A=P(AP,15%,13) ...... (IV)

Calculate the factor (AP,15%,13).

Substitute 15% i, and 13 years for n in Equation (II).

(AP,15%,13)=[0.15( 1+0.15)13( 1+0.15)131]=0.1791

Substitute $1900000 for P, and 0.1791 for (AP,15%,13) in Equation (IV).

A=$1900000×0.1791=$340290

Therefore, the value of land after 13 years is $340290.

Calculate the annuity value of facility construction cost.

Substitute $5300000 for P, and 0.1791 for (AP,15%,13) in Equation (IV).

A=$5300000×0.1791=$949230

Therefore, the construction cost after 13 year will be $949230.

Annual O&M expenses starting from the year 4 are calculated by using the annul gradient uniform series as shown below.

A=P(AP,15%,13)+G(AG,2%,13)A=P(AP,15%,13)+G[1in( 1+i)n1] ...... (V)

Calculate the factor [1in(1+i)n1]

Substitute 2% for i, and 13 years for n.

(AG,2%,13)=[10.0213( 1+0.02)131]=5.5872

Substitute $2450000 for P and G, 5.5872 for [1in(1+i)n1], and 0.1791 for (AP,15%,13) in Equation (V).

A=($2450000×0.1791)+($2450000×5.5872)=$14460390

Raw materials expenses starting from the year 4 are calculated by using annul gradient uniform series as shown below.

Substitute $1500000 for P and G, 5.5872 for [1in(1+i)n1], and 0.1791 for (AP,15%,13) in Equation (V).

A=($1500000×0.1791)+($1500000×5.5872)=$8649450

Calculate the equivalent uniform annual cost (EUAC) which is sum of land purchasing cost, amount spent in construction, annual O&M expenses, and cost of raw material.

EUAC=$340290+$949230+$14460390+$8649450=$24399360

Calculate the Equivalent uniform annual worth.

EUAW=EUABEUAC

Substitute $24399360 for EUAC, and $7755750 for EUAB.

EUAW=$7755750$24399360=$16643610

Alternative Algae

Calculate the annual cost.

Substitute $3600000 for F, 15% for i, and 13 years for n in Equation (III).

A=$3600000[0.15( 0.15+1)131]=$3600000×0.0291=$104760

Calculate the equivalent uniform annual benefit (EUAB) which is sum of total revenue earned during first three year, next ten year plus salvage value.

EUAB=$7668450+$104760=$7773210

It is required to calculate the annuity value of land of algae alternative after 13 years.

A=P(AP,15%,13)

Substitute $3800000 for P, and 0.1791 for (AP,15%,13) in Equation (IV).

A=$3800000×0.1791=$680580

It is required to calculate the annuity value of construction facility of algae alternative after 13 years.

A=P(AP,15%,13)

Substitute $7100000 for P, and 0.1791 for (AP,15%,13) in Equation (IV).

A=$$7100000×0.1791=$1271610

Annual O&M expenses starting from the year 4 are calculated by using annul gradient uniform series as shown below.

Substitute $2800000 for P and G, 5.5872 for [1in(1+i)n1], and 0.1791 for (AP,15%,13) in Equation (V).

A=($2800000×0.1791)+($2800000×5.5872)=$16024400

Raw material expenses starting from the year 4 are calculated by using annul gradient uniform series as shown below.

Substitute $250000 for P and G, 5.5872 for [1in(1+i)n1], and 0.1791 for (AP,15%,13) in Equation (V).

A=($250000×0.1791)+($250000×5.5872)=$1441575

Calculate the equivalent uniform annual cost (EUAC) which is sum of land purchasing cost, amount spent in construction, annual O&M expenses, and cost of raw material.

EUAC=$680580+$1271610+$16024400+$1441575=$19418165

Calculate the Equivalent uniform annual worth.

EUAW=EUABEUAC

Substitute $19418165 for EUAC, and $7773210 for EUAB.

EUAW=$7773210$19418165=$11644955.

Conclusion:

The equivalent uniform annual worth for algae is more than that for corn.

Therefore, the algae are good for the making the biofuels.

To determine

(b)

The properties, types and use of the biofuels.

Expert Solution
Check Mark

Explanation of Solution

Biofuels:

The fuel derived from the biomass product such as plants, fiber, algae, and animal waste is known as biofuels. Biofuels are renewable energy sources. They are the best alternatives for fossil fuels and petroleum products.

Ethanol and biodiesel are the final products of the biofuels and these products are blended with the gasoline which can be used as fuel in the automotive industries.

Pros of biofuels:

  1. Biofuels are less expensive.
  2. Large availability of source materials.
  3. Renewability.
  4. Economic stimulation.
  5. Low carbon emission.

Cons of bifuels:

  1. Biofuels have low energy outputs.
  2. Refined biofuels are more expensive because of high energy outputs.
  3. Biofuels are also responsible for increase in food prices.
  4. Biofuels are also responsible for shortage of food.
  5. Large amount of water is used in its production.

Non-auto industry uses of biofuels:

  1. Used for energy generation.
  2. Provide heat.
  3. Charging electronics.
  4. Used to clean oil spills and grease.
  5. Used in cooking
  6. As a lubricant.
  7. Used to remove paints and adhesives.

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