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URGENTLY NEEDED A process plant is to be designed to make 65 kg/d of a chemical...
URGENTLY NEEDED
A process plant is to be designed to make 65 kg/d of a chemical product selling at $200/kg. The operating time will be 300 day/year. Investments: Fixed capital investment is estimated to be $6×106 which is 75% of the total capital investment. Expenses: The annual production cost (not including depreciation) is estimated to be $1.2×106 /year. For depreciation charges, the straight line method can be used over ten years as expected life of the plant. Tax, MARR, and interest rates: Tax rate is 30% per year. Based on the company policies, a minimum acceptable return of 30 percent per year (after taxes) is used as MARR for this economic evaluation. For time-value-of-money calculations, use discrete interest compounding and discrete cash flows relationships. The discretely compounded earning (discount) rate (i) is 30% per year. Cash flow can be assumed to be received in one discrete amount at the end of each year for 10 years.
Other items: Salvage values and land value can be ignored. Recovery of the working capital occurs at the end of the year 10.
a) Payback period (PBP) and compare it with the reference value for PBP (called PBPmar)
b) Net present worth
Solutions
Expert Solution
| Assuming 106 mentioned is actuallt 10^6 or Million | ||
| Details | ||
| Chemical produced /day | 65 | kg |
| Days operating / year | 300 | |
| Annual Chemical production | $ 19,500 | |
| Annual Revenue @$200/kg | $ 3,900,000 | |
| Fixed Capital investment = | $ 6,000,000 | |
| Balance Capital Investment( Net WC)=$6M/75%*25%= | $ 2,000,000 | |
| NPV & Payback Calculation | ||||||||||||
| Particulars | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | |
| Initial Investment | ||||||||||||
| Fixed Capital investment = | $ (6,000,000) | |||||||||||
| Net Working Capital Investment | $ (2,000,000) | |||||||||||
| a | Total Initial Investment | $ (8,000,000) | ||||||||||
| Cash flow from Operations | ||||||||||||
| Annual Revenue | $ 3,900,000 | $ 3,900,000 | $ 3,900,000 | $ 3,900,000 | $ 3,900,000 | $ 3,900,000 | $ 3,900,000 | $ 3,900,000 | $ 3,900,000 | $ 3,900,000 | ||
| Less : Annual Production cost | $ 1,200,000 | $ 1,200,000 | $ 1,200,000 | $ 1,200,000 | $ 1,200,000 | $ 1,200,000 | $ 1,200,000 | $ 1,200,000 | $ 1,200,000 | $ 1,200,000 | ||
| Depreciation by SL | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | ||
| EBT | $ 2,100,000 | $ 2,100,000 | $ 2,100,000 | $ 2,100,000 | $ 2,100,000 | $ 2,100,000 | $ 2,100,000 | $ 2,100,000 | $ 2,100,000 | $ 2,100,000 | ||
| Tax @30% | $ 630,000 | $ 630,000 | $ 630,000 | $ 630,000 | $ 630,000 | $ 630,000 | $ 630,000 | $ 630,000 | $ 630,000 | $ 630,000 | ||
| Earning After Tax | $ 1,470,000 | $ 1,470,000 | $ 1,470,000 | $ 1,470,000 | $ 1,470,000 | $ 1,470,000 | $ 1,470,000 | $ 1,470,000 | $ 1,470,000 | $ 1,470,000 | ||
| Add back depreciation | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | $ 600,000 | ||
| b | Net Cash flow from Operations | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | |
| Terminal Cash flow | ||||||||||||
| Return of Net working capital | $ 2,000,000 | |||||||||||
| c | Total Terminal Cash flow | $ 2,000,000 | ||||||||||
| d | Total Cash flow =a+b+c | $ (8,000,000) | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 2,070,000 | $ 4,070,000 |
| e | Discount factor @30%=1/1.3^n | 1 | 0.7692 | 0.5917 | 0.4552 | 0.3501 | 0.2693 | 0.2072 | 0.1594 | 0.1226 | 0.0943 | 0.0725 |
| f | PV of Cash flows | $ (8,000,000) | $ 1,592,244 | $ 1,224,819 | $ 942,264 |
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