Question

Estimation of production cost, total capital investment and profitability analysis for Benzalkonium chloride

Benzalkonium is especially known for its antimicrobial activity, benzalkonium chloride is an active ingredient in many consumer products:

 Pharmaceutical products such as eye, ear and nasal drops or sprays, as a preservative

 Personal care products such as hand sanitizers, wet wipes, shampoos, soaps, deodorants and cosmetics

 Skin antiseptics and wound wash sprays, such as Bactine.

 Throat lozenges and mouthwashes, as a biocide

It is desired to produce 100 000 tons of Benzalkonium chloride annually. We have a patent for “METHOD FOR PRODUCING ALKYLDIMETHYLBENZYLAMMONIUM CHLORIDES” and we wish to produce our chemical-based on this patent.

Determine the fixed capital investment, working capital investment, production cost, net profit after taxes and draw a cumulative cash position graph.

In your project use the patent given to you. You may need to make assumptions if you can not find data from the literature. You should give your claims for each assumption you make.

Good Luck.

Patent No: EP 1 505 058 A1 “METHOD FOR PRODUCING ALKYLDIMETHYLBENZYLAMMONIUM CHLORIDES”

Answer 1

Quantity = 100,000

Assumptions:

Price = 100

Production Cost = 50%

Capital investment = 1,000,000 (intial period)

Working capital investment = 10,000 (every year)

Taxes = 30%

Life of the project = 10 years

Revenues		10000000	10000000	10000000	10000000	10000000	10000000	10000000	10000000	10000000	10000000
Production cost		5000000	5000000	5000000	5000000	5000000	5000000	5000000	5000000	5000000	5000000
Operating profit		5000000	5000000	5000000	5000000	5000000	5000000	5000000	5000000	5000000	5000000
Depreciation		1000000	1000000	1000000	1000000	1000000	1000000	1000000	1000000	1000000	1000000
Profit before tax		4000000	4000000	4000000	4000000	4000000	4000000	4000000	4000000	4000000	4000000
Taxes		1200000	1200000	1200000	1200000	1200000	1200000	1200000	1200000	1200000	1200000
Profit after tax		2800000	2800000	2800000	2800000	2800000	2800000	2800000	2800000	2800000	2800000
	0	1	2	3	4	5	6	7	8	9	10
Cash flows	-10000000	3800000	3800000	3800000	3800000	3800000	3800000	3800000	3800000	3800000	3800000
Cumulative cash flows	-10000000	-6200000	-2400000	1400000	5200000	9000000	12800000	16600000	20400000	24200000	28000000
IRR	36%

If you want to provide/change any assumptions please let me know in the comment section. Thanks.