CEV633 - ASSIGNMENT 1 CO2, PO5, C1-C6

You are working as an engineer in the local petro-chemical plant consultant company. The company has
got a job to design and build up the new Polyurethane plant at Pasir Gudang, Johor. The other engineers
in the company have come out with the proposal details for the new plant. You have been assigned to
do the profitability analysis based on the projected costs for the new plant which are given below (all
numbers are in $106).

Land cost = $30

Fixed capital investment = $500 ($300 at end of year 1, $150 at end of year 2, and $50 at
end of year 3)
Start-up at end of year 3
Revenue from sales = $400 / yr
Cost of raw materials = $50 / yr
Cost of utilities = $24 / yr
Cost of waste treatment = $5 / yr
Cost of operating labour = $6 /yr
Factors used for COMd:
FCIL = 0.18
COL = 2.73
CUT, CWT & CRM = 1.23
Factors used for Working Capital:
CRM = FCIL = COL = 0.10
Tax rate = 42%
Depreciation method = Current MACRS over 5 years
Length of time over which profitability is to be assessed = 10 years after start-up
Internal rate of return = 12% p.a.
Salvage value = $10

For this project, do the following (using CAPCOST software):

Part A .
a. Generate the cumulative (non-discounted) after-tax cash flow diagram (2 marks –C5)
(Use multiple annual investment display option)
b. From Part (a):
(i) Identify the cumulative cash position and cumulative cash ratio (2 marks – C1)
(ii) Estimate the payback period (1 mark – C2)
(iii) Estimate the rate of return on investment (1 mark – C2)

c. Generate the cumulative (discounted) after-tax cash flow diagram. (2 marks – C5)
(Use multiple annual investment display option)
d. From Part (c):
(i) Identify the net present value and net present value ratio (2 marks – C1)
(ii) Estimate the discounted payback period (1 mark – C2)
(iii) Estimate the discounted cash flow rate of return (DCFROR) (1 mark – C2)

Part B .
Repeat Part A (a to d) by using a straight-line depreciation method over 7 years.
Compare the results with those previous obtained. (12 marks – C4)
Propose the depreciation method would you use? (1 mark – C5)

Part C .
For Problem Part A, uncertainties associated with predicting the revenues and cost of manufacturing
are estimated to be as follows:

FCIL: Expected range of variation from base case, low = $425.0 million, high = $575.0 million
Revenue: Expected range of variation from base case, low = $300.0 million, high = $440.0 million
Working capital: Expected range of variation from base case, low = $41.7 million, high = $61.16
million
Interest rate: Expected range of variation from base case, low = 8.4%, high = 13.8%
Raw Material Price: Expected range of variation from base case, low = $45.0 million, high = $62.5
million

Using the above information, conclude the expected distribution of NPVs and DCFRORs for the
project. Would this analysis change your decision compared to that for the base case?
(11 marks – C6)

Part D .
From the lowest and highest NPVs that are possible and the distribution of these NPVs from problem
in Part C, evaluate the probabilities of getting an NPV within $50 million of these NPVs’ values?
(4 marks – C5)

This assignment is due by 14 May 2018 (Monday), 5.00pm. Late submission will result in deduction
of the marks (1 day late -20%, 2 days late -50%, 3 days late on onwards -100%)