Your assignment is to determine the return on investment for an ammonia plant that is being considered for construction.
The plant will produce 55,650 kg/hr of ammonia, which sells for $0.60/kg. The plant will operate 24 hours per day and have a service factor of 0.92 (in other words, the plant will be producing during 92% of the available hours of the year). The total investment for the plant is projected as $166 million, which can be depreciated over 12 years. The annual operating cost of running the plant is estimated to be $220.4 million.
a. Use a spreadsheet to determine the ROI for tax rates ranging from 0% to 50% (in 5% increments).
b. What is the ROI for the current tax rate of about 35%?
c. How significant are taxes when determining profitability? (Justify your response.)