A process to produce 2000 ton/ year of pyruvic acid requires a total capital investment of...

A process to produce 2000 ton/ year of pyruvic acid requires a total capital investment of $ 30 million (working capital of $ 3 million). Fixed operating costs are $ 1 million/ year and the the variable operating costs (excluding raw materials) is expected to be $ 0.5/kg product. The yield of the product per ton of raw material is 80%. The tax rate is 35%. Calculate the selling price (in $/kg) which gives a minimum ROI after tax of 35%. Assume straight line depreciation. The project life is 10 years.

Expert Solution

produce	2000	tons
investment	30	Million $
wc	3	Million $
net investment in fixed assets	27	Million $
operating Fixed Cost	1	Million $
Variable cost	0.5	$ per kg
yield of the product per ton of Raw material	80.00%
tax rate	35.00%
SP?	??????
ROI after tax	35.00%
life	10	years


Depreciation =	$27 million / 10 years	2.7	Million $
Required return=	35% of 30mil $	10.5	Million $
Variable cost excluding RM	0.5 per kg	0.5	per kg
raw materials	Yield = 80% of RM	2000 tons = 80% of RM
		RM= 2000/80%
	RM=	2500	TONS
	2500 TONS =	2267962	Kg


particulars	Million $
sales	23.9878271538	2000 TONS
- raw materials	3	*Note 1*
- VC	1.133981	(2267962*$0.5/Kg)
contribution	19.8538461538
- Fixed cost	1	(given)
EBITDA	18.8538461538
-DA	2.7	(from above)
EBIT	16.1538461538	100.00%
-interest	0
EBT	16.1538461538	100.00%
-taxes	5.6538461538	35.00%
PAT	10.5	65.00%

*Calculations :*
sales	23.98782715	Million $
tons	2000 tons or	1814369	Kg
selling price (in $/kg)=	23.98782715 million $ /1814369 kg)
selling price (in $/kg)=	0.000013221	Million $

*answer*	*0.000013221*	*Million $*

*Note 1 : working capital =*	CA-CL
assume Current liability ( CL) = 0
CA= working capital
working capital includes RM , inventory etc
so, working capital =Raw materials

*Assumption 2 : working capital is also an investment as it could have earned something , if invested otherwise*

jeff jeffy answered 3 years ago

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