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Project analyses
Student Name:
Number:
Hassan Saeed Al-Qadheeb
210003380
Mohammed Al-Mulhim
210015326
Hassan Al-Busaleh
210022310
Ahmad Al-Khalfan
210033361
Ali Ibrahim Al-Haiz
210024642
Department:
Electrical
Mechanical
Mechanical
Chemical
Mechanical
Problem Statement:
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:
Table1: projected sales and cash operating expenses
Year
sales LB/YR
Selling
$/LB
0
price operating
price $/LB
0
15000000
0.28
0.16
17000000
0.28
0.16
19000000
0.26
0.15
20000000
0.27
0.15
20000000
0.28
0.15
20000000
0.29
0.16
18000000
0.3
0.17
17000000
0.3
0.17
15000000
0.28
0.18
10
13000000
0.28
0.18
expenses
Results:
(a) we have to get the net cash flow from the given
And in details :
D=I-S/N
because we dont 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%
Revenue (R)
Cash Flow
(CF)
Depreciation (D)
Operations
Cash Operating
Expenses (C)
Operating
income
Gross
income
Revenue
operating income
Y
0
C
0
R
0
(R-C)
0
2400000
4200000
1800000
2720000
4760000
2040000
2850000
4940000
2090000
3000000
5400000
2400000
3000000
5600000
2600000
3200000
5800000
2600000
3060000
5400000
2340000
2890000
5100000
2210000
2700000
4200000
1500000
10
2340000
3640000
1300000
Table3: Calculating the cross income, tax income and net income after taxes.
year
operating income
Depreciation
cross income
tax
tax income
Y
0
(R-C)
0
D
0
(R-C-D)
0
t
0
t*(R-C-D)
0
(R-C-D)-t(R-C-D)
0
1800000
600000
1200000
0.46
552000
648000
2040000
600000
1440000
0.46
662400
777600
2090000
600000
1490000
0.46
685400
804600
2400000
600000
1800000
0.46
828000
972000
2600000
600000
2000000
0.46
920000
1080000
2600000
600000
2000000
0.46
920000
1080000
2340000
600000
1740000
0.46
800400
939600
2210000
600000
1610000
0.46
740600
869400
1500000
600000
900000
0.46
414000
486000
10
1300000
600000
700000
0.46
322000
378000
Cash Flow
(R-C-D)-t(R-C-D)
[(R-C-D)-t(R-C-D)] + D
0
1
2
3
4
5
6
7
8
9
10
0
648000
777600
804600
972000
1080000
1080000
939600
869400
486000
378000
0
648000
1377600
1404600
1572000
1680000
1680000
1539600
1469400
1086000
978000
(b) we can plot the cumulative cash position chart using the data in
table5. See figure2.
year
-1.5
0
1
2
3
4
5
6
7
8
9
10
0
-6000000
-5352000
-3974400
-2569800
-997800
682200
2362200
3901800
5371200
6457200
7435200
10
8
6
Net Profit
over total life
of project
4
2
Total capital
investment
0
-3
-2
-1
-2
-4
Payback period
-6
-8
Years
10
11
$ -997800
$ 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