﻿ Process Economics - Profitability - GATE Chemical Engineeirng - Questions - with Solutions at MSubbu Academy

## Profitability

### GATE-CH-1999-2-19-eco-2mark

1999-2-19-eco

Each of the methods given in the left-hand column is closely linked to one of the items listed in the right-hand column. Match each method with the corresponding item.

• I. Discounted cash flow

• II. Declining balance

### GATE-CH-1999-1-29-eco-1mark

1999-1-29-eco

In a manufacturing industry, break-even point occurs when

• the annual rate of production equals the assigned value

• the total annual product cost equals the total annual sales

• the annual profit equals the expected value

• the annual sales equals the fixed costs

### GATE-CH-2000-1-29-eco-1mark

2000-1-29-eco

For a typical project, the cumulative cash flow is zero at the

• end of the project life
• break-even point
• start-up
• end of the design stage

### GATE-CH-2001-1-22-eco-1mark

2001-1-22-eco

An investment of $100 million is to be made for construction of a plant which will take two years to start production. The annual profit from operation of the plant is$ 20 million. What will be the payback time?

• 5 years
• 7 years
• 12 years
• 10 years

### GATE-CH-2002-1-13-eco-1mark

2002-1-13-eco

The total investment in a project is $10 million and the annual profit is$ 1.5 million. If the project life is 10 years, then the simple rate of return on investment is

• 15%
• 10%
• 1.5%
• 150%

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2005-73-eco

• 113,600
• 42,000
• 52,500
• 10,500

### GATE-CH-2016-20-eco-1mark

2016-20-eco

Two design options for a distillation system are being compared based on the total annual cost. Information available is as follows:
Option $$P$$     Option $$Q$$
Installed cost of the system
($in million) 150 120 Cost of cooling water for condenser ($ in million/year)
6 8
Cost of steam for reboiler
($in million/year) 16 20 The annual fixed charge amounts to 12% of the installed cost. Based on the above information, what is the total annual cost ($ in million/year) of the better option?

• 40
• 42.4
• 92
• 128

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### GATE-CH-2016-22-eco-1mark

2016-22-eco

Terms used in engineering economics have standard definitions and interpretations. Which one of the following statements is INCORRECT?

• The profitability measure 'return on investment' does not consider the time value of money
• A cost index is an index value for a given time showing the cost at that time relative to a certain base time
• The 'six-tenths factor rule' is used to estimate the cost of an equipment from the cost of a similar equipment with a different capacity
• Payback period is calculated based on the payback time for the sum of the fixed and the working capital investment

### 0900-9-eco-1mark

0900-9-eco

What is the capitalized cost of a public works project that will cost $25,000,000 now and will require$ 2,000,000 in maintenance annually? The effective annual interest rate is 12%.

### GATE-CH-1989-19-i-eco-4mark

1989-19-i-eco

An equipment costs Rs. 1,70,000 and will have a scrap value of Rs. 25,000 at the end of its useful life of 10 years. If the interest is compounded at 10% per year, what are: (i) the present worth of renewable perpetuity, and (ii) the capitalised cost (all in Rs.)?

(i) ____________

{#1}

(ii) ____________
{#2}

### GATE-CH-1997-28-eco-2mark

1997-28-eco

For a chemical plant, the fixed capital investment is Rs. $$4\times 10^9$$ and the working capital is 20% of the total capital investment. The annual total product costs are Rs. $$2\times 10^9$$ whereas the annual depreciation costs are Rs. $$2\times 10^8$$. If the annual sales are Rs. $$3\times 10^9$$ and the income-tax rate is 40%, then determine (by neglecting start-up costs):

(a) the percent of total capital investment returned annually as gross profit.
{#1}

(b) the pay-out time (year).
{#2}

### GATE-CH-2000-12-eco-5mark

2000-12-eco

A plant is designed to produce $$1.2 \times 10^8$$ kg/yr of an agrochemical. The estimated fixed capital investment is $$$1.5\times 10^9$$. The working capital is$ $$2\times 10^8$$ and start-up cost (only in the first year of commissioning and to be accounted for in the first year) is $$$1.5\times 10^8$$. The following cost data are available: Raw materials:$ 0.8/kg product
Labour and utilities, etc: $0.27/kg product Selling price of product:$ 10/kg
Other costs (on per year basis) including maintenance, insurance, etc. @10% of fixed capital.
Indirect cost of administration, R& D, marketing, etc. @ 20% of sale proceeds.
The plant will be fully depreciated over a period of 5 years using the straight-line method.
The rate of income tax is 40%.

Calculate:

(ii) Discounted value of the depreciation benefit over the tax life in $is {#2} ### GATE-CH-2010-50-51-eco-4mark 2010-50-51-eco A plant produces phenol. The variable cost in rupees per tonne of phenol is related to the plant capacity $$P$$ (in tonnes/day) as $$45,000 + 5P$$. The fixed charges are$ 100,000 per day. The selling price of phenol is $50,000 per tonne. (i) The optimal plant capacity (in tonnes per day) for minimum cost per tonne of phenol, is {#1} (ii) The break-even capacity in tonnes per day, is {#2} ### GATE-CH-PI-2010-50-51-eco-4mark PI-2010-50-51-eco A company is engaged in producing and selling a single product. The fixed cost of the product is $$F$$ per period. The selling price for the product is $$S$$ per unit. The variable cost is $$V$$ per unit, which is half of the selling price, i.e., $$S/2$$ per unit. The company has computed its Break Even Sales in monetary units. Not being satisfied with this Break Even Sales, the company has decided to increase the selling price from $$S$$ to $$1.5S$$. The company has again computed the new Break Even Sales in monetary units keeping the fixed cost ($$F$$) and variable cost ($$S/2$$ per unit) of the product same. (i) The ratio of new to old Break Even Sales is {#1} (ii) The firm desires to make a profit equal to fixed cost of the product. In this scenario, the ratio of new to old Required Sales Volume is {#2} ### GATE-CH-1987-18-i-eco-2mark 1987-18-i-eco A plant is producing 1000 ton/year of a product. The overall yield is 70% on mass basis. The raw material costs Rs. 100/ton, and the product sells at Rs.350/ton. A process modification has been devised that will increase the yield to 75%. The additional investment required is Rs. 400,000. Is the modification worth making if the minimum acceptable rate of return is 20%? (Yes/No) • Yes • No ### GATE-CH-1988-19-ii-eco-6mark 1988-19-ii-eco A single effect evaporator costs Rs. 100,000 and a two effect evaporator costs Rs. 200,000 for identical duty. The annual steam cost for single effect is Rs. 25,000, and for double effect it is Rs. 5,000. Depreciation is calculated on a straight line basis, assuming a ten-year service life and zero salvage value. Should one effect or two effects be used if the value of money is 15 percent? • one • two [Index] ### GATE-CH-1990-19-ii-eco-6mark 1990-19-ii-eco For a project having a life of ten years the following cash flow pattern is expected: End of year Net cash flow (Rs.) 0 $$-$$50,00,000 1-10 20,00,000 10 $$-$$1,50,00,000 If the expected interest rate is 20 percent, what is your recommendation about implementing the project? • recommended • not recommended ### GATE-CH-2002-2-15-eco-2mark 2002-2-15-eco A company has a depreciable investment of Rs. 36300 which is depreciated in equal installments in two years. Assume that the tax rate is 50% and interest rate is 10%. The net present value of tax (in Rs.) that the company would have saved (over and above he first case), if it had depreciated 2/3 of the investment in the first year and the rest in the second year, is • 0 • 250 • 375 • 500 ### GATE-CH-2003-81-eco-2mark 2003-81-eco Two pumps under consideration for installation at a plant have the following capital investments and salvage values. Pump $$A$$: $$C_I$$ =$ 40,000; $$C_S$$ = $3,900. Pump B: $$C_I$$ =$ 50,000; $$C_S$$ = $20,000. Using capitalized cost, determine what should be the common life of the pumps for both to be competitive (economically equivalent). Interest rate is 10% per annum. Maintenance and operational costs are negligible. • 3 years • 5 years • 6 years • 8 years ### GATE-CH-2004-84-eco-2mark 2004-84-eco Fixed capital investment for a chemical plant is$ 40 million with an estimated useful life of 6 years and a salvage value of $4 million. The rate of interest is 15%. Tax is 25% of the annual taxable income. In the first year of operation, the income from sales is$ 20 million and manufacturing expenses are $5 million. The plant depreciates on a straight line basis. The net present value (NPV) in million$ at the start and at the end of first year operation is respectively given by

• zero and -28.9
• -40 and -28.9
• -40 and 12.75
• zero and 12.75

### GATE-CH-2010-45-eco-2mark

2010-45-eco

A reactor needs to be lined with a corrosion resistant lining. One type of lining costs $5 million and is expected to last for 2 years. Another type of lining lasts for 3 years. If both choices have to be equally economical, with the effective interest rate being 18%, compounded annually, the price one should pay for the second type of lining is •$ 6.1 million
• $6.5 million •$ 6.9 million
• $7.6 million [Index] ### GATE-CH-2012-44-eco-2mark 2012-44-eco Heat integration is planned in a process plant at an investment$ $$2\times10^6$$. This would result in a net energy savings of 20 GJ per year. If the nominal rate of interest is 15% and the plant life is 3 years, then the breakeven cost of energy, in $per GJ (adjusted to the nearest hundred), is • 33500 • 43800 • 54200 • 64500 ### GATE-CH-PI-2011-45-eco-2mark PI-2011-45-eco A company proposes to spend$ 200,000 for a new machine. The service life of the machine is three years and the minimum acceptable rate of return per year is 25%. The annual savings (in $) due to the machine, assumed to incur at the year end, should be at least •$ 130,950
• $118,340 •$ 102,460

### GATE-CH-2002-20-eco-5mark

2002-20-eco

An engineer has purchased a pump for which the installed cost is Rs. 200,000. If no annual maintenance is carried out on the pump, it will have a service life of 5 years, with no salvage value. On the other hand, if annual maintenance is carried out at a cost of Rs. 10,000 per year, then the pump will have a service life of 7 years, with a salvage value of Rs. 10,000.

1. Derive the formula for capitalized cost, in terms of $$C_I$$ (initial purchase cost of the equipment), $$C_S$$ (salvage value), $$n$$ (lifetime), $$C_M$$ (annual end-of-year maintenance cost) and $$i$$ (interest rate). Assume that the cost of replacing the equipment at the end of its service life is the same as its initial cost.

2. If the interest rate is 10%, determine based on capitalized cost analysis, whether annual maintenance on the pump should be carried out or not (neglect depreciation in your analysis).

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