. A proposal to manufacture 5000 t/yr. of a halogenated organic intermediate is
ID: 1188881 • Letter: #
Question
. A proposal to manufacture 5000 t/yr. of a halogenated organic intermediate is set out below:
Estimated total capital cost $1,200,000
Construction time 2 years
Working capital 20% of FCI
Operating cost (exc. depreciation) $40 per ton
Revenue from sales $200 per ton
Plant life 10 years
Salvage value $100,000
Land value $100,000
Income tax rate 50%
Operating cost at reduce capacity is expressed as follows:
-0.5
OC = $40* (Capacity/5000)
Time Market forecast (t/yr)
1982 1500
1983 1600
1984 1700
1985 1900
1986 2500
1987 3400
1988 4700
1989 5100
1990 5300
1991 4700
1992 4000
1993 2000
1994 on 0.
Assuming that the intermediate is storable for a maximum of one year, would you recommend proceeding with the proposal? Justify your answer. Analyze the cash flow position. Take present time to be end of 1981.
Explanation / Answer
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
Estiamted Cost
1,200,000.00
-
-
-
-
-
-
-
-
-
-
-
-
-
Sales(estimated)
-
1,500.00
1,600.00
1,700.00
1,900.00
2,500.00
3,400.00
4,700.00
5,100.00
5,300.00
4,700.00
4,000.00
2,000.00
-
Revenue for Tonne
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ -
(-)Operating Cost
$ 40.00
$ 70.71
$ 68.60
$ 64.89
$ 56.57
$ 48.51
$ 41.26
$ 39.61
$ 38.85
$ 41.26
$ 44.72
$ 63.25
Net revenue per tonne
$ 160.00
$ 129.29
$ 131.40
$ 135.11
$ 143.43
$ 151.49
$ 158.74
$ 160.39
$ 161.15
$ 158.74
$ 155.28
$ 136.75
Total Revenue
$ 240,000.00
$ 206,862.92
$ 223,380.96
$ 256,711.72
$ 358,578.64
$ 515,075.77
$ 746,092.81
$ 818,009.90
$ 854,087.40
$ 746,092.81
$ 621,114.56
$ 273,508.89
(-)Depreciation
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ -
Net revenue
$ 240,000.00
$ 106,862.92
$ 123,380.96
$ 156,711.72
$ 258,578.64
$ 415,075.77
$ 646,092.81
$ 718,009.90
$ 754,087.40
$ 646,092.81
$ 521,114.56
$ 273,508.89
(-)Tax @ 50%
$ 120,000.00
$ 53,431.46
$ 61,690.48
$ 78,355.86
$ 129,289.32
$ 207,537.89
$ 323,046.40
$ 359,004.95
$ 377,043.70
$ 323,046.40
$ 260,557.28
$ 136,754.45
Profit after tax
$ 240,000.00
$ 106,862.92
$ 123,380.96
$ 156,711.72
$ 258,578.64
$ 415,075.77
$ 646,092.81
$ 718,009.90
$ 754,087.40
$ 646,092.81
$ 521,114.56
$ 273,508.89
(+) Depreciation
$ -
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ -
Cash Flow
$ 240,000.00
$ 206,862.92
$ 223,380.96
$ 256,711.72
$ 358,578.64
$ 515,075.77
$ 746,092.81
$ 818,009.90
$ 854,087.40
$ 746,092.81
$ 621,114.56
$ 273,508.89
Cash flow is in positive so the proposal is viable.
Land value to be excluded from cost to calculate the depreciation as land is a non depreciable asset.
at the end of 10th year, the salvage value is 100,000, deducted the same to arrive the depreciation.
Depreciation = (12,00,000-100,000-100,000)/10 = 1,00,000
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
Estiamted Cost
1,200,000.00
-
-
-
-
-
-
-
-
-
-
-
-
-
Sales(estimated)
-
1,500.00
1,600.00
1,700.00
1,900.00
2,500.00
3,400.00
4,700.00
5,100.00
5,300.00
4,700.00
4,000.00
2,000.00
-
Revenue for Tonne
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ 200.00
$ -
(-)Operating Cost
$ 40.00
$ 70.71
$ 68.60
$ 64.89
$ 56.57
$ 48.51
$ 41.26
$ 39.61
$ 38.85
$ 41.26
$ 44.72
$ 63.25
Net revenue per tonne
$ 160.00
$ 129.29
$ 131.40
$ 135.11
$ 143.43
$ 151.49
$ 158.74
$ 160.39
$ 161.15
$ 158.74
$ 155.28
$ 136.75
Total Revenue
$ 240,000.00
$ 206,862.92
$ 223,380.96
$ 256,711.72
$ 358,578.64
$ 515,075.77
$ 746,092.81
$ 818,009.90
$ 854,087.40
$ 746,092.81
$ 621,114.56
$ 273,508.89
(-)Depreciation
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ -
Net revenue
$ 240,000.00
$ 106,862.92
$ 123,380.96
$ 156,711.72
$ 258,578.64
$ 415,075.77
$ 646,092.81
$ 718,009.90
$ 754,087.40
$ 646,092.81
$ 521,114.56
$ 273,508.89
(-)Tax @ 50%
$ 120,000.00
$ 53,431.46
$ 61,690.48
$ 78,355.86
$ 129,289.32
$ 207,537.89
$ 323,046.40
$ 359,004.95
$ 377,043.70
$ 323,046.40
$ 260,557.28
$ 136,754.45
Profit after tax
$ 240,000.00
$ 106,862.92
$ 123,380.96
$ 156,711.72
$ 258,578.64
$ 415,075.77
$ 646,092.81
$ 718,009.90
$ 754,087.40
$ 646,092.81
$ 521,114.56
$ 273,508.89
(+) Depreciation
$ -
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ -
Cash Flow
$ 240,000.00
$ 206,862.92
$ 223,380.96
$ 256,711.72
$ 358,578.64
$ 515,075.77
$ 746,092.81
$ 818,009.90
$ 854,087.40
$ 746,092.81
$ 621,114.56
$ 273,508.89
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