.A plant is designed to produce 10,000 t/year of product. Total fixed capital investment is $1,250,000 and the plant operates about 8,400 h/yr.Working capital is 5% of annual sales revenue. It is a highly automated continuous process involving four processing steps. Plant overhead is 50% of labor payroll.Supervision cost is $20,000 per year.Repairs and maintenance cost is 10% of FCI for the first year and then increase by $15,000 each year.The plant life is 10 years and the company accountant uses the sum-of-the-years-digits method for depreciation.Salvage value of the plant is $0.0.Selling and distribution costs are $20 per ton of product.General overheads are 10% of sales revenue.Tax rate is 50%.Each ton of product requires:
1,400 kg. raw material at $.29/kg.
280 Kwh electricity at $0.015/Kwh
4500 kg. steam at $1.5/1,000 kg
30 cubic m. cooling water at $0.25 per cubic m.
25 cubic m. of natural gas at $0.05 per cubic m.
A) What price should the company charge for the product in order to have a discounted rate of return of 30%?
B) Determine the profitability of the project and plot the cash flow position if it operates at 50% of full capacity for the first year, and at 75% of full capacity for the second year.Take imas 0.15.
Hint:Use the following equation for estimating operating labor cost ($10/man-hr)
3
where L = 10