A circulating heating loop for an endothermic reactor has been in operation for several years. Due to an oversight in the design phase, a certain portion of the heating loop piping was left uninsulated. The consequence is a significant energy loss. Two types of insulation can be used to reduce the heat loss. They are both available in two thicknesses. The estimated cost of the insulation and the estimated yearly savings in energy costs are given in Table E10.10. (The ranking has been added to the alternatives and is based on increasing project cost.)

Assume an acceptable internal rate of return for a nondiscounted profitability analysis to be 15% (0.15).

1. For the four types of insulation determine the rate of return on incremental investment (ROROII) and the incremental payback period (IPBP).

2. Determine the value of the incremental payback period equivalent to the 15% internal rate of return.

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Ranking (Option #) 1 2 3 4 5 сл Table E10.10 Rankings of Alternative Insulations for Example 10.10 Alternative Insulation No Insulation B-1" Thick B-2" Thick A-1" Thick A-2" Thick Project Yearly Savings Generated Cost (PC) by Project (YS) 0 $3000 $5000 $6000 $9700 0 $1400 $1900 $2000 $2400