CHAPTER 6

PROFITABILITY ANALYSIS

A new chemical plant is going to be built and will require the following capital investments (all figures are
in $million).
Cost of land= RM 1.69
Total fixed capital investment, FCIL= RM 47.39
Fixed capital investment during year 1= RM 23.695
Fixed capital investment during year 2= RM 23.695
Plant start-up at end of year 2
Working capital = RM 9.48
COMd = RM 23.24
Taxation rate = 25%
Interest rate = 15%
Salvage value = 0
Revenue = RM 43.95
Depreciation = use 7 years Straight line

End of
Year, k
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Investment

dk

FCIL - dk

COMd

(1.69)
(23.695)
(33.175)
11.17

6.77
6.77
6.77
6.77
6.77
6.77
6.77
-

47.39
47.39
47.39
40.62
33.85
27.08
20.31
13.54
6.77
0
0
0
0
0
0
0
0
0

43.95
43.95
43.95
43.95
43.95
43.95
43.95
43.95
43.95
43.95
43.95
43.95
43.95
43.95
43.95

23.24
23.24
23.24
23.24
23.24
23.24
23.24
23.24
23.24
23.24
23.24
23.24
23.24
23.24
23.24

(R-COM-dk)
(1-t) + dk
17.225
17.225
17.225
17.225
17.225
17.225
17.225
15.5325
15.5325
15.5325
15.5325
15.5325
15.5325
15.5325
15.5325

Cash flow
(1.69)
(23.695)
(33.175)
17.225
17.225
17.225
17.225
17.225
17.225
17.225
15.5325
15.5325
15.5325
15.5325
15.5325
15.5325
15.5325
29.7025

Cumulative
cash flow
(1.69)
(25.385)
(58.563)
(41.335)
(24.11)
(6.885)
10.34
27.565
44.79
62.015
77.5475
93.08
108.6125
124.145
139.6775
155.21
170.7425
200.445

250

200

150

100

50

0
0

10

11

12

13

14

15

16

17

-50

-100

End of year, k

Non Discounted Cash Flow

Discounted Cash Flow

Cumulative Discounted
Cash Flow

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

(1.69)
(23.695)
(33.175)
17.225
17.225
17.225
17.225
17.225
17.225
17.225
15.5325
15.5325
15.5325
15.5325
15.5325
15.5325
15.5325
29.7025

(1.69)
(20.60)
(25.09)
11.33
9.8484
8.5639
7.4468
6.4755
5.6309
4.8964
3.8394
3.3386
2.9031
2.5245
2.1952
1.9089
1.6599
2.7601

(1.69)
(22.29)
(47.38)
(36.05)
(26.20)
(17.64)
(10.19)
(3.72)
1.92
6.81
10.65
44.51
47.41
49.94
52.13
54.04
55.70
58.46