Scenario 2 Dubai government has signed an agreement for construction of a 228,00

Question

Scenario 2 Dubai government has signed an agreement for construction of a 228,000 sq. ft. electronics and specialised waste recycling plant at Dubai Industrial Park by December 2018. The construction will cost 3m AED and ongoing operating costs are estimated to be 500k AED annually. The faclity wll serve as the region's largest centre of expertise for electronic waste management. The plant will recycle the entire range of end-of-life electrical and electronic equipment ranging from consumer and industrial to commercial and military appliances, such as air conditioners, batteries, IT equipment, household appliances, tary avionics and mobile phones. Phase 1 of the plant will comprise state-of-the-art equipment to process 50,000 tonnes of electronic waste annually. Phase 2, which will go live at the end of the second year of operation and cost another m AED for construction, will increase capacity to 75,000 tonnes annually. Each tonne generates 50 AED of revenue through resale or reuse. The cost of capital is 10%. Determine payback, net present value (NPV) and internal rate of return (IRR).

Explanation / Answer

SOLUTION:

Aim :

Construction of 22800 sq ft plant.

Cost – 30,00,000 AED and operation cost 5,00,000 AED annually

Phase 1 – Capacity to recycle 50,000 tonnes annually

Phase 2 – Capacity will be increased to 75,000 tonnes annually ( after investing more 1 million AED)

Cost generated from recycle – 50 AED per tonne

Money earned in Phase 1 = 50000 * 50

                                 = 25,00,000 AED

Money earned in Phase 2 = 75000 * 50

                                               =   37,50,000

In Phase 1 investment = 35,00,000 AED

Phase 1 loss = 10,00,000 AED

Phase 2 investment = 15,00,000 AED

Phase 2 profit = 22,50,000 AED

So by Phase 2 government will be able to earn profit

Project plan

Task 1 = Construct plant in one year for 50,000 tonnes capacity for 3 million AED

Task 2 = Improve the plant capacity and increase it to 75,000 tonnes capacity and in that more 1 million AED will be invested

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