A heat integration project results in saving 5 MM Btu/h of heating utility and 14 MM Btu/h of cooling utility. The prices of heating and cooling utilities are $4/MM Btu and $7/MM Btu respectively. The process operates for 8000 h per year. The project requires the installation of three heat exchangers, pumps, and pipeline. The FCI of the project is $4.0 MM. The working capital investment is taken as 15/85 of the FCI. The annual operating cost of the project (for pumping the integrated streams) is $0.5 MM/year. Depreciation is calculated over 10 years with no salvage value. The corporate tax rate for the project is 25% of the annual taxable gross profit. What is the payback period of the project

The payback period refers to the amount of time it takes to recover the cost of an investment. In order to find a payback period we need to go through some calculations first

Annual savings = 5 MM Btu/hr x 8,000 hr/yr x $4/MM Btu x 14 MM Btu/hr x 8,000 hr/yr x $7/MMBtu

Annual savings = $0.944 MM/yr

TCI = [tex]\frac{4.0 MM}{0.85}[/tex]

TCI = $4.7 MM

Depreciation - Annualized fixed cost = [tex]\frac{[4.0 - 0] }{10}[/tex]

Depreciation - Annualized fixed cost = $0.4 MM/yr

Total cost annualized = Annualized fixed cost + Annual operating cost

Total cost annualized = 0.4 + 0.5

Total cost annualized= 0.9 MM/yr

Annual net (after-tax) profit = Annual income - Total cost annualized x (1-Tax rate + Depreciation

Annual net (after-tax) profit = $0.944 MM/yr - $0.9 MM/yr x 1 -0.25 + $0.4 MM/yr

Annual net (after-tax) profit = 0.433MM/yr

Payback period = [tex]\frac{4.0}{0.433MM/yr}[/tex]

Payback period = 9.24 yr