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Engineering Economics Project analyses Student Name: Number: Hassan Saeed Al-Qadheeb Mohammed Al-Mulhim Hassan Al-Busaleh Ahmad Al-Khalfan
Engineering Economics Project analyses Student Name: Number: Hassan Saeed Al-Qadheeb Mohammed Al-Mulhim Hassan Al-Busaleh Ahmad Al-Khalfan

Engineering Economics

Project analyses

Student Name:

Number:

Hassan Saeed Al-Qadheeb Mohammed Al-Mulhim Hassan Al-Busaleh Ahmad Al-Khalfan Ali Ibrahim Al-Haiz

210003380

210015326

210022310

210033361

210024642

Department:

Electrical

Mechanical

Mechanical

Chemical

Mechanical

APPLYING ECONOMIC ANALYSIS

Problem Statement:

Problem Statement: 7.4: The star Chemical Co. manufactures specialty products. The land for a proposed expenditure

7.4: The star Chemical Co. manufactures specialty products. The land for a proposed expenditure may be considered negligible ,but the fixed capital investment is estimated to $6,000,000. The equipment is

to be purchased and installed over an 18-month period before startup.

For this project time zero may be assumed at startup. It is assumed that the Straight line 10-year depreciation rules apply. The projected sales, selling price, and cash operating expenses are tabulated below.

If the federal income tax rate is 46%, provide the following for

management's consideration:

a. a tabulated cash flow summary

b. a cumulative cash position chart, labeling all lines on the chart

c. a cumulative cash position at the end of the project (10 years)

Given:

Given: Table1: projected sales and cash operating expenses Selling price operating expenses Year sales LB/YR $/LB

Table1: projected sales and cash operating expenses

   

Selling

price

operating

expenses

Year

sales LB/YR

$/LB

price $/LB

0

0

0

0

1

  • 15000000 0.28

 

0.16

2

  • 17000000 0.28

 

0.16

3

  • 19000000 0.26

 

0.15

4

  • 20000000 0.27

 

0.15

5

  • 20000000 0.28

 

0.15

6

  • 20000000 0.29

 

0.16

7

  • 18000000 0.3

 

0.17

8

  • 17000000 0.3

 

0.17

9

  • 15000000 0.28

 

0.18

10

  • 13000000 0.28

 

0.18

Results:

Results: (a) we have to get the net cash flow from the given And in details

(a) we have to get the net cash flow from the given

And in details :

D=I-S/N

because we

don’t have salvage value , we can get

the depreciation by this relation D = I/N (straight line method) So , D = $6000,000/10= $600,000

Where ( I is the capital investment )

Tax rate = 46%

Cash Flow Diagram Revenue (R) Operations Cash Operating Expenses (C) Cash Flow (CF) Operating income Depreciation
Cash Flow Diagram
Revenue (R)
Operations
Cash Operating
Expenses (C)
Cash Flow
(CF)
Operating
income
Depreciation (D)
Gross
income
Net Income after
Taxes
Tax income (t)
Table 2: calculating R and C: year cash operating expenses Revenue operating income Y C R
Table 2: calculating R and C:
year
cash operating expenses
Revenue
operating income
Y
C
R
(R-C)
0
0
0
0
1
2400000
4200000
1800000
2
2720000
4760000
2040000
3
2850000
4940000
2090000
4
3000000
5400000
2400000
5
3000000
5600000
2600000
6
3200000
5800000
2600000
7
3060000
5400000
2340000
8
2890000
5100000
2210000
9
2700000
4200000
1500000
10
2340000
3640000
1300000
Table3: Calculating the cross income, tax income and net income after taxes. year operating income Depreciation
Table3: Calculating the cross income, tax income and net income after taxes.
year
operating income
Depreciation
cross income
tax
tax income
net income after taxes
Y
(R-C)
D (R-C-D)
t
t*(R-C-D)
(R-C-D)-t(R-C-D)
0
0 0
0 0
0
0
1
1800000
600000
1200000
0.46
552000
648000
2
2040000
600000
1440000
0.46
662400
777600
3
2090000
600000
1490000
0.46
685400
804600
4
2400000
600000
1800000
0.46
828000
972000
5
2600000
600000
2000000
0.46
920000
1080000
6
2600000
600000
2000000
0.46
920000
1080000
7
2340000
600000
1740000
0.46
800400
939600
8
2210000
600000
1610000
0.46
740600
869400
9
1500000
600000
900000
0.46
414000
486000
10
1300000
600000
700000
0.46
322000
378000
Table4: calculating the net cash flow. year net income after taxes Cash Flow net cash flow
Table4: calculating the net cash flow.
year
net income after
taxes
Cash Flow
net cash flow
Y
(R-C-D)-t(R-C-D)
[(R-C-D)-t(R-C-D)] + D
previous cash flow + cash
flow
0
0 0
-6000000
1
648000
648000
-5352000
2
777600
1377600
-3974400
3
804600
1404600
-2569800
4
972000
1572000
-997800
5
1080000
1680000
682200
6
1080000
1680000
2362200
7
939600
1539600
3901800
8
869400
1469400
5371200
9
486000
1086000
6457200
10
378000
978000
7435200

(b) we can plot the cumulative cash position chart using the data in table5. See figure2.

(b) we can plot the cumulative cash position chart using the data in table5. See figure2.

------------------------------------------------------------------

Table5: Net Cash Flow

year

Net cash flow

-1.5

0

0

-6000000

1

-5352000

2

-3974400

3

-2569800

4

-997800

5

682200

6

2362200

7

3901800

8

5371200

9

6457200

10

7435200

Years
Years
Cumulative Cash Position Chart 10 Life of Project Earning 8 6 4 Net Profit over total
Cumulative Cash Position Chart
10
Life of Project Earning
8
6
4
Net Profit
over total life
of project
2
0
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
-2
-4
-6
Payback period
-8
Net cash flow
Total capital
investment
Million

Figure2: Cumulative Cash Position Chart.

(c.) a cumulative cash position at the end of the project

(10 years):

(c.) a cumulative cash position at the end of the project (10 years): ------------------------------------------------------------------ The cumulative

------------------------------------------------------------------

The cumulative cash position at the end of the project = $ 7435200 And the payback period is: from net cash flow table :

 
  • 4 $ -997800

 
  • 5 $ 682200

f(x)+slope(N-x)=0

-997800+ m(N-4)=0 m=(682200-(-997800))/(5-4) = 1680000 so, -997800+ 1680000(N-4)=0 = -997800+1680000*N 1680000*4=0 = 1680000*N = 997800+(1680000*4) Payback period N =(997800 +(1680000*4))/1680000

Payback period = 4.593928571

The end
The end
The end