Project ForgePlant Design & Economics
Profitability Analysis
GATE 2010
Hard
A reactor needs to be lined with a corrosion resistant lining. One type of lining costs Rs. 5 lakhs, 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
- ARs. 6.1 lakhs
- BRs. 6.5 lakhs
- Rs. 6.9 lakhs
- DRs. 7.6 lakhs
Explanation
Equating equivalent uniform annual costs: 5×CRF(18%,2)=X×CRF(18%,3). CRF(18%,2)=0.18(1.18)²/[(1.18)²−1]=0.6388. CRF(18%,3)=0.18(1.18)³/[(1.18)³−1]=0.4599. X=5×0.6388/0.4599≈6.9 lakhs.
Source: GATE CH 2010 (2010)
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