For Problem 10.8, uncertainties associated with predicting the revenues and cost of manufacturing are estimated to be
Question:
For Problem 10.8, uncertainties associated with predicting the revenues and cost of manufacturing are estimated to be as follows:
Revenue: Expected range of variation from base case, low = $45 million, high = $53.5 million
COMd: Expected range of variation from base case, low = $16 million, high = $21.5 million Using the above information, evaluate the expected distribution of NPVs and DCFRORs for the project. Would this analysis change your decision compared to that for the base case?
Problem 10.8
The projected costs for a new plant are given below (all numbers are in $106).
Land cost = $7.5
Fixed capital investment = $120 ($60 at end of year 1, $39.60 at end of year 2, and $20.40 at end of year 3)
Working capital = $35 (at startup)
Startup at end of year 3
Revenue from sales = $52
Cost of manufacturing (without depreciation) = $18
Tax rate = 40%
Depreciation method = MACRS over 5 years
Length of time over which profitability is to be assessed = 10 years after startup
Internal rate of return = 9.5% p.a.
For this project, do the following:
Draw a cumulative (nondiscounted) after-tax cash flow diagram.
From Part (a), calculate the following nondiscounted profitability criteria for the project:
Cumulative cash position and cumulative cash ratio
Payback period
Rate of return on investment
Draw a cumulative (discounted) after-tax cash flow diagram.
From Part (c), calculate the following discounted profitability criteria for the project:
Net present value and net present value ratio
Discounted payback period
Discounted cash flow rate of return (DCFROR)
Step by Step Answer:
Analysis Synthesis And Design Of Chemical Processes
ISBN: 9780134177403
5th Edition
Authors: Richard Turton, Joseph Shaeiwitz, Debangsu Bhattacharyya, Wallace Whiting