For the problem presented in Examples 10.1 and 10.2, determine the discounted cash flow rate of return (DCFROR).

Example 10.2

For the project described in Example 10.1, determine the following discounted profitability criteria:

1. Discounted payback period (DPBP)

2. Net present value (NPV)

3. Present value ratio (PVR)

Assume a discount rate of 0.1 (10% p.a.).

Example 10.1

A new chemical plant is going to be built and will require the following capital investments (all figures are in $million):

Cost of land, L = $10.0

Total fixed capital investment, FCI = $150.0

Fixed capital investment during year 1 = $90.0

Fixed capital investment during year 2 = $60.0

Plant startup at end of year 2

Working capital = $30.0 at end of year 2

The sales revenues and costs of manufacturing are given below:

Yearly sales revenue (after startup), R = $75.0/y

Cost of manufacturing excluding depreciation allowance (after startup), COM = $30.0/y

Taxation rate, t = 45%

Salvage value of plant, S = $10.0

Depreciation: Use 5-year MACRS.

Assume a project life of 10 years.

Calculate each nondiscounted profitability criterion given in this section for this plant.