Reference no: EM13884250

The adipic acid plant from Examples 7.8 and 8.2 is built with 30% of the fixed investment in year 1 and 70% in year 2, and the plant operates at 50% of capacity in year 3 before reaching full capacity in year 4. The plant can be depreciated by the straight-line method over ten years and profits can be assumed to be taxed at 35% per year, payable the next year. Assume that losses cannot be offset against revenues from other operations for tax purposes (i.e., no tax credits in years when the plant makes a loss). Estimate the following:

a. The cash flow in each year of the project

b. The simple payback period

c. The net present value with a 15% cost of capital for 10 years and 15 years of production at full capacity

d. The DCFROR for 15 years of production at full capacity

Is this an attractive investment?