Question: An engineer in charge of the design of a plant must choose either a batch or a continuous system. The batch system offers a lower initial outlay but, because of higher labor requirements, exhibits a higher operating cost. The cash flows relevant to this decision have been estimated as follows:
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Year 0
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Years 1-10 (after taxes)
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Discounted cash flow rate of return
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Net present worth at 10%
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Batch system
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-$20,000
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$5,600/year
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25%
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$14,400
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Continuous system
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-$30,000
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$7650/year
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22%
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$17,000
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Check the values given for the discounted cash flow rate of return and net present worth. If the company requires a minimum rate of return of 10 percent, which system should be chosen?