Waste Management entered into a contract with Edison Energy to clean up a decomm
ID: 2743034 • Letter: W
Question
Waste Management entered into a contract with Edison Energy to clean up a decommissioned bitumen refinery. Waste Management intends to recycle scrap metal and clean up the site over a projected 364 day period. If the recycling, clean up, and de-toxifying activities are judged acceptable by the government, Edison Energy will sell the land to Waste Management for $500,000. Edison Energy originally purchased the land for $1.5 million. If the site is successfully cleaned up, it has an estimated resale value of $5.5 million. Trucking costs to haul away the scrap metal are estimated at $1.20 per tonne per loaded kilometer. The scrap yard is 100 kms. from the industrial site. Each truck can carry 10 tonnes of scrap.
100 full-time workers will be needed for the project. They will be paid an average hourly wage of $40 plus benefits totaling 25% of the hourly wage. The standard work period is seven days on followed by seven days off. There will be two shifts each day, each with 25 workers. One shift will work from 6 AM to 6 PM; the other will work from 6 PM to 6 AM. Assume that no overtime is paid. Food and accommodation for each on-duty worker will cost $1,000 per week. The cost to lease a bus to transport the workers from camp to the industrial site will be $400 per round trip. Two round bus trips are needed to transport the workers each day. Equipment will be leased for $2 million over the life of the project, including maintenance and repairs. Fuel and other supplies are estimated at $400,000 in total. Temporary leased buildings used at the site will cost $200,000 in total.
An estimated one million cubic metres of contaminated soil will need to be processed at a cost of $10 per cubic metre. These costs exclude those listed above.
1. Calculate the project’s estimated revenues and costs. Assume the land will be transferred to Waste management at the end of the project for $500,000 and immediately resold at the estimated fair market value. Ignore revenues and expenses related to the sale of scrap metal.
2. How many tonnes of scrap metal will need to be recovered for Edison Energy to earn a profit of $1.25 million, if scrap can be sold for $220 per tonne?
3. Ignore your answer to part 2. Assume that 400,000 tonnes of scrap metal will be recycled. What is the lowest price per tonne of scrap metal that Edison Energy can receive for the project to break even?
Explanation / Answer
1) Estimated costs: Wages for workers-(50 workers*12 hours*365 days*$40) 8760000 (50 workers will be working every day and 50 would be having off) Benefits - 25% on wages 2190000 Food and accomodation while on duty-50 workers*52 weeks*$1000 2600000 Lease rent for bus-365 days* 2 round trips*400 292000 Lease rent for equipment 2000000 Fuel and other supplies 400000 Lease rent of buildings 200000 Processing of contaminated soil--1000000*$10 10000000 26442000 Estimated revenue (from sale of the land to Waste Management) 500000 2) Sale value per tonne of scrap 220 Less: Transportation cost of scrap per tonne--$1.2*100 120 Net revenue per tonne 100 Total amount to be realised through scrap sale to make profit of $1.25 m 25942000 $ # tonnes of scrap to be recovered to make a profit of $1.25 million (25942000/100) 259420 tonnes 3) Lowest price that Edison energy can receive to break even (25942000/400000) $ 64.86
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