You are planning to buy a heat exchanger to recover 1.3 MMBtu/hr of waste heat from...

You are planning to buy a heat exchanger to recover 1.3 MMBtu/hr of waste heat from a process into a feed stream. Currently you pay $10/MMBtu for steam to heat up this feed stream. You can install a carbon steel shell and tube exchanger (U-tube type, with a heat transfer area of 150 m2) into a tight spot between two other pieces of equipment. This exchanger costs 199,757$ and will need to be replaced in 10 years, but will have a salvage value of 20% of the original cost. If you assume a prevailing interest rate of 3%, compounded annually, what is the net present value of your investment over 10 years? Assume that the plant operates 8,000 hours per year.
Will the IRR of the investment in problem1 be greater or less than 3%? Please explain why

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Expert Solution

Present value of Savings = $887,141.095

Present Value of Salvage Value = $29727.60

Present value of Investment = 887141..095+29727.60 = $916868.70

IRR = 16.46% > 3% interest rate

jeff jeffy answered 1 year ago

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