A chemical plant has a 1-year construction period and a useful service life of 10 years. In the first

year of operation, the plant will operate at 50 % capacity. In years 2 -10 the plant will operate at

90 % capacity, generating 300,000 lb/year of a chemical that sells for $ 4.00 /lb.

The FCI is $400,000, depreciable with the MACRS 5-year schedule. The working capital is $

60,000.

The plant has fixed operating costs (independent of production level) of $ 20,000/year, and

variable operating costs of $0.80/lb of product.

Assume a tax rate of 40%, including federal and state taxes.

The discount rate is 15%.

a) Prepare an Excel spreadsheet to develop an annual cash flow table and a discounted

cumulative cash flow diagram

b) Determine the net present value

c)

Determine the internal rate of return

d) Determine the discounted payback period.