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Question: a company is constructing a new chemical plant requiring a...

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A company is constructing a new chemical plant requiring a cost of $1,750,000 as the total depreciable capital. Assume land is purchased at the start of construction and is 2% of the total depreciable capital and no initial royalty costs are applied to this project. Plant construction is completed 1 year after construction begins and no startup costs are required. At the end of the construction, $100,000 of working capital is withdrawn and chemical production commences. The class life of the plant is determined to be 3 years. However, the plant chemical production life is estimated at 5 years from the start of production. Sales each year is approximately $1,250,000/year, with an annual production cost (without depreciation) of $450,000/year. Assume that the nominal discount rate of 18% is applied, the annual tax rate is 30%, and the plant has a salvage value of $200,000. Assume the Present Reference year (i.e. beginning of Year 1) as the start of production and sales. Determine: a e MACRS depreciation schedule for a 3-year class life is used. Report the depreciation factor (ie. DYear-depreciation factor * (Depreciation Base)) used for each year depreciation occurs. Calculate the Investors Rate of Return for the project. Assume the cash flow for sales and production costs are continuous and constant over each year. Assume the cash flow for total depreciable capital, land, salvage value, and working capital occur instantly at the given time. L.e CToc and Ciand flows out instantly at the beginning of Year 0, Cwe flows instantly at the beginning of Year 1 and Cwe and Cland are returned instantly at the end of the project. Assume continuous compounding. Calculate the NPV if the company uses 18% as the target nominal discount rate. Assume continuous cash flow and continuous compounding as before (except for CTDC, Cwc, Ciand) b) c)

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