Engineered Products Inc. (EPI) is a conglomerate with both manufacturing and ser
ID: 444996 • Letter: E
Question
Engineered Products Inc. (EPI) is a conglomerate with both manufacturing and service-based businesses. One of EPI’s larger manufacturing plants has been asked to increase its recycling efforts or face a major increase in its disposal fees. EPI prides itself on being a good corporate citizen and has committed to taking any and all feasible actions to reduce the volume and weight of material it sends to the local landfill. The local landfill plans to increase disposal fees by $5 per ton. It is offering to rebate $5 for each ton less than the current 12-month average that the plant sends to the landfill. The plant does not foresee any changes in the current levels of waste generation due to volume or product changes.
Currently, the plant averages sending two containers per day to the landfill. The containers average 10 tons of waste when loaded. The landfill charges $40 per ton to receive the waste. The waste hauler charges $80 per load (one container) to transport the waste. The three waste containers are rented for $5 per container per day.
Currently, cardboard, if collected and bundled for shipment, can be sold for $95 per ton. The plant estimates that it sends 2 tons of cardboard a day to the landfill. To collect the cardboard will require one janitorial associate for 3 hours per day at a cost of $18.50 per hour. The baling equipment will cost $22,000 installed, $45 per week to operate, $4500 per year to maintain, and last 12 years. The equipment will have a salvage value of $5000.
Currently, 25,000 wooden pallets per year are scrapped each year because they are damaged or because they are not of the standard size used by the plant. The plant has budgeted $12,000 for a pallet shredder to chip the pallets as they go into the waste containers Cases in Engineering Economy 2nd by Peterson & Eschenbach 76 to reduce their volume and allow the average weight per container to increase to 11 tons. The shredder has no salvage value at the end of its 6-year useful life. The operating and maintenance cost (not including the operator, a janitorial associate) is $3000 per year. The pallets average 13 pounds each.
A pallet recycler has offered to purchase pallets, which are of certain sizes and in good condition. The pallets that are in these sizes and in acceptable condition amount to half the scrapped pallets. The pallet recycler is offering to pay $1.00 per pallet. To sort the acceptable sizes from the scrap pallets will require three hours of labor per day. This job can also be done by a janitorial associate. Purchasing has identified a company that will pick up the damaged and unusable pallets and process them into wood chips, which this company then sells. The cost of this service is $1.25 per pallet.
The plant works 5 days a week, 50 weeks a year. The minimum attractive rate of return is 15%. What do you recommend the plant do?
Explanation / Answer
Engineered Products Inc. (EPI) is a conglomerate with both manufacturing and service-based
businesses. One of EPI’s larger manufacturing plants has been asked to increase its recycling
efforts or face a major increase in its disposal fees.
The plant works 5 days a week, 50 weeks a year, 20 days a month, 240 days a year.
The minimum attractive rate of return is 15%.
Currently, the plant averages sending 2 containers per day to the landfill.
The containers average 10 tons of waste when loaded.
2
containers =
20
tons
In the future, the average weight per container would increase to 11 tons
2
containers =
22
tons
The local landfill plans to increase disposal fees by $5 per ton. It is offering to rebate $5 for
each ton less than thecurrent 12-month average that the plant sends to the landfill.
Currently
4800
Tons
Per 12 months
In the future
5280
Tons
Per 12 months
Difference
480
Tons
Per 12 months
Increased disposal fees
-2400
$
Per 12 months
=
-4800
$
A year
The landfill charges $40 per ton to receive the waste
-800
$
A day
=
-192000
$
A year
In the future
-880
$
A day
=
-211200
$
A year
The waste hauler charges $80 per load (one container) to transport the waste.
The three waste containers are rented for $5 per container per day.
-160
$
A day
=
-38400
$
A year
-10
$
A day
=
-2400
$
A year
Currently, cardboard, if collected and bundled for shipment, can be sold for $95 per ton
The plant estimates that it sends 2 tons of cardboard a day to the landfill.
190
$
A day
=
45600
$
A year
To collect the cardboard will require one janitorial associate for 3 hours per day at a cost of $18.50 per hour.
-55,5
$
A day
=
-13320
$
A year
The baling equipment will cost $22,000 installed, $45 per week to operate, $4500 per year to
maintain, and last 12 years. The equipment will have a salvage value of $5000.
-6750
$
A year
=
-8166,67
$
A year
-22000
$
0th year
5000
$
12th year
Currently, 25,000 wooden pallets per year are scrapped each year because they are
damaged or because they are not of the standard size used by the plant. The plant has
budgeted $12,000 for a pallet shredder to chip the pallets as they go into the waste containers
The pallets average 13 pounds each. 1 ton = 2240 pounds
The operating and maintenance cost (not including the operator, a janitorial associate) is $3000 per year
The shredder has no salvage value at the end of its 6-year useful life
-12000
$
0th year
-12000
$
6th year
-3000
$
A year
=
-5000
$
A year
145,089
Tons
A year
A pallet recycler has offered to purchase pallets, which are of certain sizes and in good
condition. The pallets that are in these sizes and in acceptable condition amount to half the
scrapped pallets. The pallet recycler is offering to pay $1.00 per pallet. To sort the acceptable
sizes from the scrap pallets will require three hours of labor per day.
12500
$
A year
=
12500
$
A year
-55,5
$
A day
=
-13320
$
A year
Purchasing has identified a company that will pick up the damaged and unusable pallets
them into wood chips, which this company then sells. The cost of this service is $1.25 per pallet.
-15625
$
A year
Total cost
312231,7
$
A year
Total benefit
58100
$
A year
IRR
-4,37404
%
What do you recommend the plant do?
Do nothing
Engineered Products Inc. (EPI) is a conglomerate with both manufacturing and service-based
businesses. One of EPI’s larger manufacturing plants has been asked to increase its recycling
efforts or face a major increase in its disposal fees.
The plant works 5 days a week, 50 weeks a year, 20 days a month, 240 days a year.
The minimum attractive rate of return is 15%.
Currently, the plant averages sending 2 containers per day to the landfill.
The containers average 10 tons of waste when loaded.
2
containers =
20
tons
In the future, the average weight per container would increase to 11 tons
2
containers =
22
tons
The local landfill plans to increase disposal fees by $5 per ton. It is offering to rebate $5 for
each ton less than thecurrent 12-month average that the plant sends to the landfill.
Currently
4800
Tons
Per 12 months
In the future
5280
Tons
Per 12 months
Difference
480
Tons
Per 12 months
Increased disposal fees
-2400
$
Per 12 months
=
-4800
$
A year
The landfill charges $40 per ton to receive the waste
-800
$
A day
=
-192000
$
A year
In the future
-880
$
A day
=
-211200
$
A year
The waste hauler charges $80 per load (one container) to transport the waste.
The three waste containers are rented for $5 per container per day.
-160
$
A day
=
-38400
$
A year
-10
$
A day
=
-2400
$
A year
Currently, cardboard, if collected and bundled for shipment, can be sold for $95 per ton
The plant estimates that it sends 2 tons of cardboard a day to the landfill.
190
$
A day
=
45600
$
A year
To collect the cardboard will require one janitorial associate for 3 hours per day at a cost of $18.50 per hour.
-55,5
$
A day
=
-13320
$
A year
The baling equipment will cost $22,000 installed, $45 per week to operate, $4500 per year to
maintain, and last 12 years. The equipment will have a salvage value of $5000.
-6750
$
A year
=
-8166,67
$
A year
-22000
$
0th year
5000
$
12th year
Currently, 25,000 wooden pallets per year are scrapped each year because they are
damaged or because they are not of the standard size used by the plant. The plant has
budgeted $12,000 for a pallet shredder to chip the pallets as they go into the waste containers
The pallets average 13 pounds each. 1 ton = 2240 pounds
The operating and maintenance cost (not including the operator, a janitorial associate) is $3000 per year
The shredder has no salvage value at the end of its 6-year useful life
-12000
$
0th year
-12000
$
6th year
-3000
$
A year
=
-5000
$
A year
145,089
Tons
A year
A pallet recycler has offered to purchase pallets, which are of certain sizes and in good
condition. The pallets that are in these sizes and in acceptable condition amount to half the
scrapped pallets. The pallet recycler is offering to pay $1.00 per pallet. To sort the acceptable
sizes from the scrap pallets will require three hours of labor per day.
12500
$
A year
=
12500
$
A year
-55,5
$
A day
=
-13320
$
A year
Purchasing has identified a company that will pick up the damaged and unusable pallets
them into wood chips, which this company then sells. The cost of this service is $1.25 per pallet.
-15625
$
A year
Total cost
312231,7
$
A year
Total benefit
58100
$
A year
IRR
-4,37404
%
What do you recommend the plant do?
Do nothing
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