Problem statement Ajax Petrochemical,Inc.in1980 considered the manufacture of pl
ID: 1247414 • Letter: P
Question
Problem statement
Ajax Petrochemical,Inc.in1980 considered the manufacture of plasticizer for potential customers in the plastics industry. At that time, market survey was made, but the results did not appear to promising. The project was shelved.
In 1984, Ajax was acquired by Fusible Plastics Corp., large plastics manufacturer that wanted to integrate backward to raw materials. Since that merger, the surviving company has been reviewing the profitability of all Ajax projects. The marketing department of Fusible Plastics has prepared the following 10-year market survey for the hydrocarbon plasticizer:
YEAR
POTENTIAL SALES,
LB/YR
ESTIMATED SALES PRICE,
$/LB
1988
20.0 MM
0.52
1989
20.5 MM
0.52
1990
21.0 MM
0.51
1991
22.0 MM
0.50
1992
23.0 MM
0.50
1993-97
25.0 MM
0.48
The process to manufacture the plasticizer involves fluids only. The delivered equipment cost of the process equipment as 1987 is as follows:
Tanks
$ 230,000
Pumps
75,000
Heat Exchangers
525,000
Filters
120,000
Rcactors
1,200,000
Miscellaneous Equipment
350,000
TOTAL DELIVERED EQUIPMENT COST
2,500,000
The company uses l988 figures as a constant dollar basis, therefore.
all figures are assumed to be in 1988 dollars, except the equipment COS1$,.
Land for this analysis may be considered as negligible, but working capital
may be taken as 15% of the total capital investment. Apex Contractors
has prepared a detailed estimate for the fixed capital investment of $12
million. The 'fixed capital investment is purchased and installed over a 2.
year period prior to startup, which is expected to be January 1, 1988.
Chlorine is used to manufacture the hydrocarbon plasticizer. The chlorine
is supplied by Fusibles
YEAR
POTENTIAL SALES,
LB/YR
ESTIMATED SALES PRICE,
$/LB
1988
20.0 MM
0.52
1989
20.5 MM
0.52
1990
21.0 MM
0.51
1991
22.0 MM
0.50
1992
23.0 MM
0.50
1993-97
25.0 MM
0.48
Explanation / Answer
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