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CHAPTER 9

Total Capital Investment = Fixed Capital + Working Capital


= $ 6,099138.43 + $1,219827.70
= $7,318966.13

The simple pay-back time can be calculated as follows:

Simple payback time = $7,318966.13 / $3,557830.75


= 2.06 years

= (22.0 MM/( 10 X 7.31)) X 100 % =30.09%

Overall Plant Economic Analysis

Figure : The graph of Cumulative Cash Flow against Time


From this economic analysis, the production of this formaldehyde plant is an attractive
project with the fixed and working capital cost invested, together with both the fixed and variable
costs of production. From the net present value calculation, the actual payback period of the
plant is 6 years plus, taking into account the time value of money. If considering from the simple
payback method calculation, the payback period is 2.06 years. This shows that both ways of
analysis the payback period give a reasonable project to be invested in as the common payback
period for industry is usually from 5 to 8 years. In addition to that, the plant received its first
revenue from year 3 onwards when the plant runs and by year 5, there is already a positive cash
inflow rate of USD 1.78 million. The initial capital investment is USD 7.31 million. From
estimation, the plant will begin operate at its full capacity and generate 100% of the design basis
revenue with 100% of the VCOP at year 4. In the year 4 and onwards, there is a basic gross profit
of USD 1.78 million annually. The return of investment determined is 30.09% for first 10 years
and 34% for the first 15 years. Furthermore, according to the Malaysia income tax incentives by

Ministry of Finance that high technology companies can apply for pioneer status, being defined
as companies in which at least 7% of the work force are science and technical graduates and of
which research and development costs amount to 1% gross sales. 100% of the statutory income
of high technology companies is exempted from tax for a period of 5 years.
As such, there is an exemption of tax for the first 5 years of operation, giving the plant a
higher profit rate.

It is proven that this design is a good design with high profit in short payback period.
Thus, this design made it as a possible design.

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