Life cycle cost model of a recycling plant

Abstract

In this project the initialization of a new recycling plant is considered. The project focused on the plant profitability study. It showed the importance of correctly estimating the cost of the project to have the capital investment. It also presented the estimation done on the operating cost of the plant that are used to calculate the various fixed, variable, and semi variable costs. The profit of the considered recycling plant is calculated by estimating the sales income that will be generated and by calculating the savings achieved by using the recycled material as a replacement to the expensive virgin raw material. The operating costs as well as the profits are calculated at less than full capacity of the plant. Having the capital investment, operating costs, and the profits generated, the life cycle cost model is performed and the profitability values are obtained. The profitability values consisted of the Net Present Value, Internal Rate of Return, Profitability Index, and the Return on Investment. The breakeven point as well as the shutdown point has been calculated to set a target for the minimum running hours of the plant at fixed finished good output. The profitability study of the project continued by considering the risky elements that might bring the results close to the breakeven point. The conversion cost is calculated at breakeven and a sensitivity analysis is done for the three major cost elements that are the labor, electricity, and raw material cost. The results helped in further setting targets for the management in the preconstruction phase. The decision of the management is based on the risk elements provided in this project as well as the estimated profit under the considered risks.