Dickinson, a large oil and gas drilling and operating corporation, has invested over the past 6 years in the installation and operation of a FOUNDATION Fieldbus H1 (FF H1) system developed by Pepperl+Fuchs of Germany. A project engineer has collected information on annual net cash flow increases (?NCF) generated by the FF H1 system and the annual investments made by Dickinson in the system. At an interest rate of 10% per year, determine the PI of this endeavor. Has it proven to be economically worthwhile? (Note: Problem 9.54 explores the fieldbus implementation further using a spreadsheet.)
What will be an ideal response?
In $10,000 units
PW of ?NCF = 5(P/A,10%,6) + 2(P/G,10%,6) +5(P/F,10%,6)
= 5(4.3553) + 2(9.6842) + 5(0.5645)
= $43.97
PW of investments = 15 + 8(P/F,10%,1) + 10(P/F,10%,2) + 5(P/F,10%,5)
+ 10(P/F,10%,6)
= 15 + 8(0.9091) + 10(0.8264) + 5(0.6209) + 10(0.5645)
= $39.29
PI = 43.97/39.29
= 1.12
The project was economically worthwhile since PI > 1.0
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