COST ESTIMATION AND PROFITIBILITY ANALYSIS

A financial requirement of the project of 300000 ton/annum capacity setup in 2002 was 51.78 million $. Present cost = (original cost) x (cost index at present/cost index in past) x (Present capacity/original capacity)0.6 = 51.78 x 106 x (676.5/395.6) x (750000/300000)0.6 = 153.43 million $. Direct Costs (DC): Direct Cost is 70 to 80% of fixed cost of Investment (FCI) Sr. No. Item Purchased Equipment Cost(PEC) Installation cost Insulation Packing Yard improvement cost Land purchase cost Piping Installation Cost Electrical Cost Building process and auxiliary Service facilities Yard Improvement % of FCI/PEC 1 30 46.029 Cost ($ million)

2 3 4 5 6 7 8 9

40 13 6 45 15 40 50 12

18.411 5.983 2.761 20.713 6.904 18.4116 23.014 5.523

TOTAL DIRECT COST (DC) = 147.749 million $.

Indirect Costs:

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Sr. No. 1 2 3 4

Item Engineering & Design Cost Construction expenses Contractor Fees Contingencies

% of DC 15 10 4 12

Cost ($. Million) 22.16 14.77 5.909 17.72

Total Indirect Cost = 60.559 million $. Fixed Capital Investment (FCI) = Total Direct Cost + Total Indirect Cost = 147.749 + 60.559 = 208.308 million $. Working Capital Investment (WCI) = 15% of Fixed Capital Investment (FCI) = 0.15 x208.308 = 31.2462 million $. TOTAL CAPITAL INVESTMENT (TCI) = Fixed Capital Investment +Working Capital Investment = 208.308+31.2462 = 239.554 million $. Fixed Cost: (1) Depreciation = 10 % of Fixed Capital Investment = 0.1 x 239.554 million $ = 23.95 million $. (2) Local Taxes = 4 % of Fixed Capital Investment = 0.04 x 239.554 million $ = 9.582 million $. (3) Insurance Cost = 0.6 % of Fixed Capital Investment = 0.006 x 239.554 million $ = 1.437 million $. (4) Rent = 10% of building value = $ 0.2761 million TOTAL FIXED COST = Depreciation + Local Taxes + Insurance Cost+Rent =35.239 million $.
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Total fixed cost Total production cost (TPC) Direct Production Cost:

= 18% of Total production cost (TPC) = 195.77 million $

(1) Raw material cost is 30% of TPC = 58.73 million $ (2) Utilities Cost = 13% of Total Production Cost = 25.45million $. (3) Operating Labor = 15 % of Total Production Cost = 29.365 million $. (4) Clerical Labor & Supervision Cost = 12% of Operating Labor = 23.4924 million $ (5) Maintenance and repairs = 8% of Fixed capital investment = 15.66 million $ (6) Lab & Other Service Cost = 15% of operating labor cost =29.36 million $ (7) Operating supplies = 15% of maintenance and repairs cost = 29.36 million $

DIRECT PRODUCTION COSTS = Raw Material Cost + Utilities Cost + Maintenance and Repair Cost + Operating Labor + Lab & Other Service Cost+ Clerical Labor & Supervision Cost+ Operating supplies
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=211.35 million $ Plant overhead Cost: These costs are 65% of (Operating Labor+ Operating supplies+ Maintenance and repairs) So, plant overhead cost is 44.53 million $. TOTAL MANUFACTURING COST = Direct Production Costs + Total Fixed Cost + Plant overhead cost = 291.119 million $. General Expenses: (1) Administrative Cost = 50% of Operating labor =14.682 million $. (2) Distribution & Marketing cost . (3) Research and development = 3% of Total production cost = 5.873 million $ Total General Expenses TOTAL PRODUCTION COST = 40.132 million $. = Total Manufacturing Cost +Total General Expenses = 331.249million $. = 10% of Total production cost = 19.577 million $

PROFITABILITY ANALYSIS: Working days = 333 Selling price

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Product MEG

Amount tons/year 750000

Selling Price $./ton 554

Total Selling Cost (TSC)/year = 416.01 million $. Gross Profit = Total Selling Cost Total Production Cost = 416.01 331.249 = 84.76 million $. Tax Paid = 0.35 x Gross Profit = 0.35 x 84.76 = 29.66 million $. Net Profit = Gross Profit Tax Paid = 84.76 29.66 = 55.097 million $. PAY OUT PERIOD: It is given by P.O.P Fixed Capital Investment per year P.O.P = Net Profit + Depreciation

208.308 = = RATE OF RETURN: It is given by R.O.R 55.097 + 23.95 2.63 Years

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Net Profit R.O.R = Total Capital Investment

55.097 x100 239.554

= 23 %

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