Question

5-2. Lignin is a basic component of almost any plant that grows, so it is one of the most abundant organic compounds in the world. Almost anything de-rived from oil can be made out of lignin. The question is "can we do it cost-effectively and consistently?" A startup company has developed a process to derive plastics, car-bon fiber, and other advanced materials from lignin. The cash-flow diagram for this process is shown below (in $ millions). If the company's hurdle rate (MARR) is 20% per year, is this a profitable undertaking? (5.3) 0 1 2 3 5 6 7 8 9 EOY

Answer 1

ANSWER:

I = 20%

PW = cash flow in year 0 + cash flow in year 1(p/a,i,n) + increase in cash flow(p/g,i,n)

pw = -30 - 20(p/a,20%,9) + 10(p/g,20%,9)

pw = -30 - 20 * 4.031 + 10 * 11.434

pw = -30 - 80.62 + 114.34

pw = 3.72

since the pw is positive , therefore it is a profitable undertaking.