Assignment:
A process with a depreciable capital investment of $100 million is to be constructed over a 3-year period. At start-up, $20 million of working capital is required. The plant is expected to operate for 10 years. At full capacity expected for the third and subsequent years of operation, the sales revenues are projected to be $150 million per year, and the total operating expenses, excluding depreciation, are projected to be $100 million per year. During the first and second years of operation, the sales revenues are anticipated to be 50 and 75 percent of the sales rev- enues projected in the third and subsequent years, respectively. The operating expenses dur- ing the first and second years will be the same as in the third and subsequent years. Assume that the income tax rate is 35 percent. Using the third year as a basis, determine
a. The return on the investment after taxes
b. The payback period 8-18