Reference no: EM133080675
A design study has just been completed for a chemical plant. The economic parameters relevant to the project include the following items:
Production at 100% capacity = 2x10^6 kg/yr
Total capital investment = $30 million
Fixed capital investment = $28 million
Sum of the fixed cost (except for depreciation) = $1 million/yr
Sum of variable product costs at full capacity = $5 million/yr
Evaluation policies: Use 5 yr MACRS depreciation with ½ yr convention.
Neglect working capital and salvage value recovery. Use 35% tax rate per year. Use 10 yr evaluation period; base the calculations on 60% of rated output the first year, 85% the 2 nd year, 100% each year thereafter.
Assume that all capital investment occurs at zero time. Minimum acceptable return 28% /yr (mar).
a) Calculate the product sales price that is required to achieve the mar, obtained by Return on Investment and Payback period.