GATE 2021 CH – Question 35

Plant Design and Economics · Depreciation, rate of return, payback period and discounted cash flow · 1 mark · Numerical answer

A company invests in a recovery unit to separate valuable metals from effluent streams. The total initial capital investment of this unit is Rs. 10 lakhs. The recovered metals are worth Rs. 4 lakhs per year. If the annual return on this investment is 15%, the annual operating costs should be _____ lakhs of rupees (correct to 1 decimal place).

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Show answer and explanation

Correct answer: 2.49 to 2.51

Explanation

The required annual return is $0.15\times10=1.5$ lakhs. With no other charges specified, annual net earnings equal the recovered-metal value minus the annual operating cost $C$.

Therefore $4-C=1.5$, giving $C=\mathbf{2.5}$ lakhs of rupees per year. Checking: $(4-2.5)/10=0.15=15\%$.