The Lake Charles Chemicals LLC is considering investing in a new gas to liquids technology developed by McNeese Students and Faculty through their R\&D. McNeese requires the company to pay a Royalty fees of $0.05/ gallon of liquids once the company starts its operations. The following financial information is presented for management review. - Capital investment: $3 million at the beginning of year 1 . This investment consists of $0.5 million in a building and $2.5 million in plant equipment. - Financing: The company also borrowed $2.5 million from a national bank at 10% interest at the beginning of year 1 . - Depreciation method: The building and the plant equipment is depreciated based on double declining balance method. - Project life: 20 years after two-year of plant construction. - Salvage value: $50,000 for the equipment and $600,000 for the building - Total Sales: Production capacity is 5000gal/ day of methanol at a selling price of $0.80/ gallon. Accounting for plant startup and shutdowns, on an average the plant will run for 330 days/year. - Out-of-pocket expenditures: 10\% of annual sales from year 3. - Working Capital: $500,000 required at beginning of year 3 . - Average tax rate: 40% a) Determine the net after-tax cash flows over the project life b) Determine the IRR for this investment c) Determine the Present worth and equivalent annual worth for the investment at MARR =25% The Lake Charles Chemicals LLC is considering investing in a new gas to liquids technology developed by McNeese Students and Faculty through their R\&D. McNeese requires the company to pay a Royalty fees of $0.05/ gallon of liquids once the company starts its operations. The following financial information is presented for management review. - Capital investment: $3 million at the beginning of year 1 . This investment consists of $0.5 million in a building and $2.5 million in plant equipment. - Financing: The company also borrowed $2.5 million from a national bank at 10% interest at the beginning of year 1 . - Depreciation method: The building and the plant equipment is depreciated based on double declining balance method. - Project life: 20 years after two-year of plant construction. - Salvage value: $50,000 for the equipment and $600,000 for the building - Total Sales: Production capacity is 5000gal/ day of methanol at a selling price of $0.80/ gallon. Accounting for plant startup and shutdowns, on an average the plant will run for 330 days/year. - Out-of-pocket expenditures: 10\% of annual sales from year 3. - Working Capital: $500,000 required at beginning of year 3 . - Average tax rate: 40% a) Determine the net after-tax cash flows over the project life b) Determine the IRR for this investment c) Determine the Present worth and equivalent annual worth for the investment at MARR =25%
