Problem: A Proposed chemical plant will cost $100,000,000, which will be depreciated by MACRS rules over 5-years. Each year the plant will produce 100,000,000 lbs of product. The fixed costs of running the plant are $20,000,000/year. The variable cost for the product (Raw material + energy) is $0.50c/lb. The product sells $ 1.10 lb
The combined incremental tax rate for the corporation is 45%. Consider the plant to be a 6-year project.
a) Make a table showing gross income, depreciation, taxable income, taxes paid, BT Cash flow and AT Cash flow)
b) What is the Before Tax Rate of Return (BTROR) and the After tax rate of return (ATROR)
c) If the After Tax Minimum Acceptable Rate of Return (AT MARR) is 15% should the project proceed