A Pilot plant has been constructed to convert garbage to oil, natural gas, and c

Question

A Pilot plant has been constructed to convert garbage to oil, natural gas, and charcoal. The plant costs 44 million to build and will have a 20 years life with no salvage value. The cost of processing 1 ton (709 kg) of garbage is $14. From each ten are derived products whish can be sold for $21 per (50.023 per kg). However, 20% of the end products are consumed as energy during the processing. The cost of delivering, sorting and shredding a ton of garbage is $2.50 (0.0028 kg). After deducting the value of salvageable materials recovered. How many tons( kg) of garbage must processed to recover cost of plants at an interest rate of %9?

Explanation / Answer

Costs =$ 44 mn

Life = 20 years

Processing Cost per ton = $ 14

Delivery, sorting, shredding costs = $ 2.50

Effective Revenue per ton = $ 21*0.80 = $ 16.80

Hence contribution margin = $ 16.80 - $ 14 - $ 2.50 = $ 0.30 per ton

Let annual garbage qty be X ton

=> Annual contribution margin = $ 0.3X

=> for breakeven, minimum X:

0.3X (A/P, 9%, 20) = $ 44 mn

=> X = 16066816.33 or 16,066,817 ton qty = ANswer

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