A large chemical manufacturing company is considering an electric power plant project in order to save...

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A large chemical manufacturing company is considering an electric power plant project in order to save on their electric power consumption by generating its own power supply. At present, the company is consuming 700,000 kwh of electric energy annually and pays an average of SR 3.15 per kwh. The power plant to be installed would cost SR 4,500,000 and it is expected to be operational for 11 years with a residual value of SR 450,000 at the end of its useful life. The total operation and maintenance cost during the first year of its operation is estimated at SR 350,000, afterwhich, this would increase annually at a compounded rate of 15% due to inflation. Since the power plant's capacity is more than enough what the company required, the excess power energy can be supplied to the neighboring establishments starting from the third year of its operation and would generate an additional income of SR 140,000 per year up to the end of the project's useful life. Required: Evaluate the above information about the proposed project and recommend whether the project should be accepted or rejected at MARR = 15% while the cost of fund and market interest rate is also 15% compounded annually. Note as well that the company is aiming to recover the investment for this project in not more than 3 years after the start of the project. A large chemical manufacturing company is considering an electric power plant project in order to save on their electric power consumption by generating its own power supply. At present, the company is consuming 700,000 kwh of electric energy annually and pays an average of SR 3.15 per kwh. The power plant to be installed would cost SR 4,500,000 and it is expected to be operational for 11 years with a residual value of SR 450,000 at the end of its useful life. The total operation and maintenance cost during the first year of its operation is estimated at SR 350,000, afterwhich, this would increase annually at a compounded rate of 15% due to inflation. Since the power plant's capacity is more than enough what the company required, the excess power energy can be supplied to the neighboring establishments starting from the third year of its operation and would generate an additional income of SR 140,000 per year up to the end of the project's useful life. Required: Evaluate the above information about the proposed project and recommend whether the project should be accepted or rejected at MARR = 15% while the cost of fund and market interest rate is also 15% compounded annually. Note as well that the company is aiming to recover the investment for this project in not more than 3 years after the start of the project.

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