206. PROFILE ON PRODUCTION OF ACETONE
Table OF CONTENTS
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|I. |SUMMARY |206-3 |
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|ii. |PRODUCT DESCRIPTION & APPLICATION …show more content…
The total investment requirement is estimated at Birr 6.17 million, out of which Birr 2.84 million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 14 % and a net present value (NPV) of Birr 1.71 million, discounted at 8.5%.
II. PRODUCT DESCRIPTION AND APPLICATION
Acetone is a colourless volatile and inflammable liquid with a mildly pungent and aromatic odor. It is miscible in all proportions with water and organic solvents such as diethyl ether, methanol, ethyl alcohol and esters.
This product is used for the following purposes:-
- As a solvent for cellulose acetate, nitro-cellulose, celluloid, chlorinated rubber, etc. - As a carrier for acetylene; - as a raw-material for the chemical synthesis of a wide range of products, such as ketone, methyl methacrylate, bisphenol A, methyl isobutyle ketone, etc, in chemicals, explosives and lacquer industries.
Acetone is an import substitute product.
III. MARKET STUDY AND PLANT CAPACITY
A. MARKET STUDY
1. Past Supply and Present Demand
The country 's requirement for acetone is totally met through import. Data obtained from the Ethiopian Customs Authority with regard to import of acetone for the period covering 1997 - 2004 is given in Table 3.1.
IMPORT OF ACETONE
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Ethyl ethanoate: Ethyl ethanoate is an ester. Esters are group of organic compounds which have a functional group of –COO-. Esters are liquids that become vapours quickly so they are present in perfumes.
After evaluating the Super Project for General Foods, the two main things that management needed to address were the relevant incremental and non-incremental cash flows discussed below and incorporate the NPV and the net cash flows (yearly) to make a decision on whether to accept or reject the project. The start-up costs were determined by splitting up the costs of $160,000 in 1967 and $40,000 in 1968. To calculate the yearly cash flows, I used year 1 through 10, and the gross profit was calculated by subtracting out relative cash flows and the before tax depreciation. The NPV of $169,530 is positive for the 10% discount rate, which is less than the IRR of 11.4%.
Thus, by year three the company will be making a profit off the investment as year three is 86.73 million profit by 55.35 cost giving the company a 31.38 million dollar surplus. Generally, a period of payback of three year or less is acceptable (Reference Entry) causing this project to be viable based off the payback analysis. Although, these calculations are flawed. The reason for this is because the time value of money is not taken into effect when calculating payback periods which is where IRR can further assist in a more realistic financial picture (Reference Entry).
Isopentyl was selected as the reactant alcohol used for synthesis. Acetic acid was used to react with the isopentyl, creating an acid-base reaction. Sulfuric Acid was used as a catalyst to speed up the reaction, allowing the reaction to occur over a shorter period of time. A higher concentration of alcohol was used than the acetic acid because the isopentyl was the limiting reagent. Le Chatelier’s principle states that a higher concentration of reactants causes the equilibrium of the reaction to favor the products.
The synthesized product was purified by further recrystallization process. The recrystallized salt was slowly added to the mixed solvent of benzene + acetone (1:2) ratio. The resultant solution was a pale orange colored. The solution was
In the case of Worldwide Paper Company we performed calculations to decide whether they should accept a new project or not. We calculated their net income and their cash flows for this project (See Table 1.6 and 1.5). We computed WPC’s weighted average cost of capital as 9.87%. We then used the cash flows to calculate the company’s NPV. We first calculated the NPV by using the 15% discount rate; by using that number we calculated a negative NPV of $2,162,760. We determined that the discount rate of 15% was out dated and insufficient. To calculate a more accurate NPV for the project, we decided to use the rate of 9.87% that we computed. Using this number we got the NPV of $577,069. With the NPV of $577,069 our conclusion is to accept this
The present value of the net incremental cash flows, totaling $5,740K, is added to the present value of the Capital Cost Allowance (CCA) tax shield, provided by the Plant and Equipment of $599K, to arrive at the project’s NPV of $6,339K. (Please refer to Exhibit 4 and 5 for assumptions and detailed NPV calculations.) This high positive NPV means that the project will add a significant amount of value to FMI. In addition, using the incremental cash flows (excluding CCA) generated by the NPV calculation, we calculated the project’s IRR to be 28%. This means that the project will generate a higher rate of return than the company’s cost of capital of 10.05%. This is also a positive indication that the company should undertake the project.
4. Based on the information provided in the case, our group calculated the NPV for the project under both tax environment and tax-free condition, respectively, by using the excel spreadsheet and the NPV function. (For a detailed calculation of NPV, please refer to Appendix Under 15-yr.) According to our calculation, we have the following results: In the first case scenario, which the firm is in a tax environment (35% income tax), the NPV of the project equals to -$6,366,054.53
NPV and IRR: When examining the NPV and the IRR of the Merseyside project, the numbers were very attractive. It had a positive net present value and an IRR above 10 percent. By these numbers, along with others,
If we look at the financial summary of M.L.I we can calculate how much Winkler can bid for this company. We can calculate Net Present Value, Indicial Rate of Return and Payback period for this project. If we take last year and estimated after tax Income as a projection and investment of $2 million we can calculate:
Acetic acid is a clear, colorless liquid at room temperature. It can also be obtained in the white crystal form since pure compound is a solid below 62°F. It bears an irritating pungent odour with the threshold limit 1ppm or 2.5mg/m3. It has burning taste.