A manufacturer has set up a plant for producing electrolytic chromium from high-carbon ferrochrome. The plant took three years to build according to the following schedule. End of Year M$ 1 Engineering Design 15 Land purchase 2 Plant construction 5 50 Plant construction 65 Working capital 15 Total (M$) 150 Production began just after the end of year 3 and continued as presented below. End of Year Production, M Ibs Price $/lb Annual Cost (M$) Tax rate 4 66 1.65 46 0.5 66 1.65 48 0.5 66 1.65 50 0.5 7 66 1.65 52 0.5 8 66 1.65 60 0.5 66 1.75 65 0.5 10 66 1.75 70 0.5 11 66 1.75 75 0.5 12 40 1.75 55 0.5 13 40 1.75 50 0.5 9,
A manufacturer has set up a plant for producing electrolytic chromium from high-carbon ferrochrome. The plant took three years to build according to the following schedule. End of Year M$ 1 Engineering Design 15 Land purchase 2 Plant construction 5 50 Plant construction 65 Working capital 15 Total (M$) 150 Production began just after the end of year 3 and continued as presented below. End of Year Production, M Ibs Price $/lb Annual Cost (M$) Tax rate 4 66 1.65 46 0.5 66 1.65 48 0.5 66 1.65 50 0.5 7 66 1.65 52 0.5 8 66 1.65 60 0.5 66 1.75 65 0.5 10 66 1.75 70 0.5 11 66 1.75 75 0.5 12 40 1.75 55 0.5 13 40 1.75 50 0.5 9,
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Assume a simple straight-line depreciation of 10% per year is applied for the tax deduction, beginning in year 4, zero salvage value, and a 10% discount rate. Note that depreciation is only applied to engineering design and plant construction. Land and working capital are not included in the depreciation formula. The land asset is not
1) Calculate the simple payback period using average annual net cash flow.
2) Calculate the pre-tax
3) Calculate the after-tax NPV for each year from year 0 to year 13.
Transcribed Image Text:A manufacturer has set up a plant for producing electrolytic chromium from high-carbon ferrochrome.
The plant took three years to build according to the following schedule.
End of Year
M$
1 Engineering Design
15
Land purchase
2
Plant construction
50
Plant construction
3
Working capital
65
15
Total (M$)
150
Production began just after the end of year 3 and continued as presented below.
End of Year Production, M Ibs Price $/lb Annual Cost (M$) Tax rate
4
66
1.65
46
0.5
66
1.65
48
0.5
66
1.65
50
0.5
7
66
1.65
52
0.5
66
1.65
60
0.5
66
1.75
65
0.5
10
66
1.75
70
0.5
11
66
1.75
75
0.5
12
40
1.75
55
0.5
13
40
1.75
50
0.5
9,
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