60.1K

Verified Solution

Link Copied!

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 an insufficiency of propylene production capacity in its hydrocarbon cracking facility. The chemical engineers are considering alternatives for supplying additional propylene to the polypropylene production facility. Two feasible alternatives are to build a pipeline to the nearest outside supply source and to provide additional propylene by truck from an outside source. The engineers also gathered the following projected cost estimates:

Future costs for purchased propylene excluding delivery: $0.5/kg.

Cost of pipeline construction: $100,000/km (pipeline).

Estimated length of pipeline: 250 km.

Transportation costs by tank truck: 10/kg, utilizing a common carrier.

Pipeline operating costs: $0.01/kg, excluding capital costs.

Projected additional propylene needs: 100 Gg per year.

Projected project life: 25 years.

Estimated salvage value of the pipeline: 10% of the installed costs.

Determine the propylene cost per kilogram under each option if the firms MARR is 20%. Which option is more economical?

Answer & Explanation Solved by verified expert

See Answer