question archive The cumulative cash flows (non-discounted) for a new chemical plant are given in below Table
The cumulative cash flows (non-discounted) for a new chemical plant are given in below Table
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The cumulative cash flows (non-discounted) for a new chemical plant are given in below Table. R ???? (R-COM dx)*(1-t)+dk Cash Flow (8.0) (60.0) (39.6) (55.4) Cumulative Cash Flow (8.0) (68.0) (107.6) (163.0) End of Investment dk FCIL-Σdk Year (k) 0 (8.0) 120.0 1 (60.0) 120.0 2 (39.6) 120.0 3 (20.4)+(35.0) 120.0 = (55.4) 4 30.0 90.0 5 30.0 60.0 6 30.0 30.0 7 30.0 8 8.0+35.0 Numbers in () represent negative values. All values are in $ millions. Plant started up at the end of Land cost = $ 8.0 millions Working capital = $ 35.0 millions 61.0 61.0 61.0 61.0 61.0 18.0 18.0 18.0 18.0 18.0 37.8 37.8 37.8 37.8 37.8 37.8 37.8 37.8 (125.2) (87.4) (49.6) (11.8) 57.0 25.8 68.80 year 3. Using this data, calculate the following: a. Payback period (PBP) b. Rate of return on investment (ROROI) c. Discounted payback period (DPBP). Marks = 04 Marks = 04 Marks = 07 Use a 9% discount rate for Part (c). Note: Show all steps and calculations.
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a)
Payback occurs in the year before the cumulative cashflow becomes positive
Payback period = Year of payback + (Cumulative cash flow / Next year cash flow) = 7 + (11.8 / 68.8) = 7.17 years
b)
Net Cash Flow = $57 million
Total Investment = $163 million
Rate of return on investment = Net Cash Flow / Total Investment = 57 / 163 = 0.3497 or 34.97%
c)
| End of Year | Cash Flow | Discounted Cash Flow | Cumulative Discounted Cash Flow |
| 0 | (8.00) | (8.00) | (8.00) |
| 1 | (60.00) | (55.05) | (63.05) |
| 2 | (39.60) | (33.33) | (96.38) |
| 3 | (55.40) | (42.78) | (139.16) |
| 4 | 37.80 | 26.78 | (112.38) |
| 5 | 37.80 | 24.57 | (87.81) |
| 6 | 37.80 | 22.54 | (65.27) |
| 7 | 37.80 | 20.68 | (44.59) |
| 8 | 68.80 | 34.53 | (10.06) |
Since the cumulative discounted cash flow does not become positive, there is no discounted payback period.
