The chemical treatment plant-capital investment good idea

The chemical treatment plant-capital investment good idea

The chemical treatment plant currently must add chemicals to main the balance in its propertary process. two chemicals are added, Napatha and toluene. Five gallons of naptha and 7 gallons of toluene are added daily. the cost of Naptha is $4.50/ gallon and toluene is $11.75/ gallon. To keep inventory low, orders are placed weekly at a cost of $50 /week the plant runs 50 weeks/year, having a week long summer and winter shutdown.

One of the engineers has identified a filtration system that will keep the chimical balance and reduce chemical usage. the capital investment for the filteration system is $120,000 and last for 7 yrs before being completely overhauld. with the new filtration only 2 gallons of Naptha are required and 3 gallons of toluene are required daily. with the reduction of inventory, orders can be placed every other week.

Is the capital investment a good idea?

What is the change in cost with the capital investment after 7 years?