A multinational chemical company plans to build a plant in a metropolitan city in Australia to...
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A multinational chemical company plans to build a plant in a metropolitan city in Australia to produce polymer resin. The feasibility study of the project provided the following details: Design plant capacity = 250,000 tonnes per year Plant fixed capital investment = A$300 million The plant is to be operated continuously throughout the year. The following performance and costs have been estimated, the cost being expressed in current Australian dollars. 160 million dollars per year Variable operating costs (including raw materials and utilities) for 100% plant production rate 24 million dollars per year 40 million dollars per year The plant construction will occur over two years. It will start in January 2022 and end in December 2023. It is expected that the production will begin in January 2024, immediately after the construction. Fixed operating costs + non-manufacturing costs (excluding annual depreciation) Working capital Sixty percent of the fixed capital will be spent in the first year of construction and the rest will be spent in the second year of construction. The plant will start producing the product from 2024 onwards. The expected annual production pattern is as follows: ● 75% of design capacity in the first year of production 85% of design capacity in the second year of production 100% of design capacity in the third and subsequent years The working capital will be spent according to the annual production pattern as follows: 75% of working capital will be spent at the end of plant construction in 2023 10% of working capital will be spent in 2024 15% of working capital will be spent in 2025 The production life of the plant may be taken as ten years for the current economic analysis. The declining balance method is to be used to depreciate the plant over its production life. The declining balance depreciation factor is 18%, and it is applied to the book value of the plant at the beginning of each year of operation. The book value of the plant in the last year of its operation will be depreciated entirely in that year. The plant would have no salvage value. Also, the working capital is fully recoverable at the end of plant life. The corporate tax rate is 30% of taxable income, and the tax is paid in the same year in which the related income is generated. A multinational chemical company plans to build a plant in a metropolitan city in Australia to produce polymer resin. The feasibility study of the project provided the following details: Design plant capacity = 250,000 tonnes per year Plant fixed capital investment = A$300 million The plant is to be operated continuously throughout the year. The following performance and costs have been estimated, the cost being expressed in current Australian dollars. 160 million dollars per year Variable operating costs (including raw materials and utilities) for 100% plant production rate 24 million dollars per year 40 million dollars per year The plant construction will occur over two years. It will start in January 2022 and end in December 2023. It is expected that the production will begin in January 2024, immediately after the construction. Fixed operating costs + non-manufacturing costs (excluding annual depreciation) Working capital Sixty percent of the fixed capital will be spent in the first year of construction and the rest will be spent in the second year of construction. The plant will start producing the product from 2024 onwards. The expected annual production pattern is as follows: ● 75% of design capacity in the first year of production 85% of design capacity in the second year of production 100% of design capacity in the third and subsequent years The working capital will be spent according to the annual production pattern as follows: 75% of working capital will be spent at the end of plant construction in 2023 10% of working capital will be spent in 2024 15% of working capital will be spent in 2025 The production life of the plant may be taken as ten years for the current economic analysis. The declining balance method is to be used to depreciate the plant over its production life. The declining balance depreciation factor is 18%, and it is applied to the book value of the plant at the beginning of each year of operation. The book value of the plant in the last year of its operation will be depreciated entirely in that year. The plant would have no salvage value. Also, the working capital is fully recoverable at the end of plant life. The corporate tax rate is 30% of taxable income, and the tax is paid in the same year in which the related income is generated.
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Answer 1 Design plant capacity 250000 tonnes per year Plant fixed capital investment A300 million Variable operating costs including raw materials and utilities for 100 plant production rate 160 milli... View the full answer
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