Pricing of Wastewater and Purge Streams

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10.1 Economic Analysis

The economic analysis of this process was conducted using the discounted cash flow method. Once cash flows for each period were estimated, the net present value NPV of the cash flows can be calculated by applying a discount factor to each p eriod’s cash flow and taking the sum. For this process, a 15 discount rate was assumed. The discount rate should reflect the perceived risk of the project and the macro-economic exposure inherent in plant operations. Based on this information, a 15 discount rate is reasonably conservative and reflects the high degrees of uncertainty in plant operations, which is consistent with a plant in the first stages of design. Using this discount rate, the NPV is calculated as 384,963,400, over the assumed 20 year life of the plant. Another metric often used when evaluating different investment opportunities is the internal rate of return IRR. IRR is the discount rate at which the NPV of a series of cash flows is zero. This is a kind of annualized return on investment. The IRR of this process was calculated to be 84.9, reflecting a reasonably high return and suggesting that this process warrants further investigation. 113 Table 10.1: Cash Flow Summary Cash Flow Summary 2013 - - - - - - - - - - - - 2014 - 75,874,000 15,213,100 - - - - - - - 91,087,200 79,206,200 2015 45 1.75 157,500,000 - 7,606,600 50,267,300 23,124,700 13,548,900 - 70,559,000 26,106,800 44,452,200 50,394,600 41,100,700 2016 68 1.75 236,250,000 - 7,606,600 78,417,000 24,049,700 21,678,300 - 112,105,000 41,478,800 70,626,100 84,697,900 14,589,500 2017 90 1.75 315,000,000 - - 108,738,200 25,011,700 13,007,000 - 168,243,100 62,249,900 105,993,100 119,000,100 82,628,200 2018 90 1.75 315,000,000 - - 113,087,800 26,012,200 7,804,200 - 168,095,900 62,195,500 105,900,400 113,704,600 139,159,500 2019 90 1.75 315,000,000 - - 117,611,300 27,052,700 7,804,200 - 162,531,900 60,136,800 102,395,100 110,199,300 186,801,700 2020 90 1.75 315,000,000 - - 122,315,700 28,134,800 3,902,100 - 160,647,400 59,439,500 101,207,900 105,110,000 226,316,400 2021 90 1.75 315,000,000 - - 127,208,300 29,260,200 - - 158,531,500 58,656,700 99,874,800 99,874,800 258,965,700 2022 90 1.75 315,000,000 - - 132,296,700 30,430,600 - - 152,272,800 56,340,900 95,931,800 95,931,800 286,235,500 2023 90 1.75 315,000,000 - - 137,588,500 31,647,800 - - 145,763,700 53,932,600 91,831,100 91,831,100 308,934,800 2024 90 1.75 315,000,000 - - 143,092,100 32,913,700 - - 138,994,200 51,427,900 87,566,400 87,566,400 327,756,600 2025 90 1.75 315,000,000 - - 148,815,800 34,230,200 - - 131,954,000 48,823,000 83,131,000 83,131,000 343,294,300 2026 90 1.75 315,000,000 - - 154,768,400 35,599,500 - - 124,632,100 46,113,900 78,518,300 78,518,300 356,055,700 2027 90 1.75 315,000,000 - - 160,959,100 37,023,400 - - 117,017,400 43,296,400 73,721,000 73,721,000 366,474,600 2028 90 1.75 315,000,000 - - 167,397,500 38,504,400 - - 109,098,100 40,366,300 68,731,800 68,731,800 374,921,400 2029 90 1.75 315,000,000 - 30,426,300 174,093,400 40,044,500 - - 100,862,100 37,319,000 63,543,100 93,969,400 384,963,400 Percentage of Product Unit Depletion Cumulative Net Present Year Design Capacity Price Sales Capital Costs Working Capital Var Costs Fixed Costs Depreciation Allowance Taxible Income Taxes Net Earnings Cash Flow Value at 15 114

10.2 Economic Sensitivities

To better understand the impact various economic changes will have on expected profits, sensitivity analyses were conducted on the price of acrylic acid, fixed costs, variable costs, and total permanent investment TPI. To create the spider graph shown in Figure 10.1, each parameter was individually varied between 50 lower than its estimated value and 50 higher than its estimated value. At each new value, the IRR was calculated while holding all other parameters constant. Figure 10.1: Sensitivity Analysis of IRR versus individual parameters As expected, IRR increases with the increasing price of acrylic acid, and decreases with increasing fixed costs, variable costs, and TPI Total Permanent Investment. When the price of acrylic acid falls to below 50 of its estimated value the plant is no longer profitable, as evidenced by a negative IRR. This is displayed by the blue curve in Figure 10.1. The TPI most significantly affects the IRR because it is a cost that takes place in the present, and thus will significantly drive the NPV of the project. Even with TPI at 50 higher than its estimated value, 20 40 60 80 100 120 140 160 180 200 -50 -30 -10 10 30 50 In ter na l Ra te of R e tur n Deviation from Estimated Value Product Cost Fixed Cost Variable Cost TPI 115 the IRR remains above 40, still suggesting that the project is worth further consideration. It should be noted that the sensitivity analysis does not take into account the relationship between the price and sales of acrylic acid. In a real market, if the price of acrylic acid were to increase to 2.75, sales would likely fall as customers search for alternative products. The actual IRR curve would likely not be as steep as that shown in Figure 10.1, page 114. Bivariate sensitivity analyses were also conducted to determine which coincident parameters showed the greatest risk for a loss in profitability. In Tables 10.2-4 is evident that if the price of acrylic acid falls to 50 of its estimated value, the fixed costs andor variable costs would have to fall significantly in order to maintain profitability. This could be a problem in a scenario where the production of acrylic acid from propane becomes extremely widespread. The cost of propane and thus the variable costs would rise due to demand and the prices of acrylic acid would fall. Steps must be taken to ensure the process remains profitable by optimizing the process as much as possible and protecting its details as trade secrets in order to maintain a competitive advantage. Although the expected IRR on the proposed process is approximately 85, the return is highly sensitive to product price. The quoted selling price of acrylic acid used for the process was 1.75lb. However, the estimated price for 2012 was listed as 1.20lb which would bring the IRR down to approximately 45. 23 The estimated price for 2013 was 1.12-1.16lb which corresponds to an IRR of 35. 24 The high volatility in acrylic acid price explains why the return calculated is questionably high. It is suggested that a price of acrylic acid of 1.15lb would produce a more reasonable estimate of the IRR. 23 Guzman, D. d. 2012. First 2012 post: OPXBio update. http:www.icis.comblogsgreen-chemicals201201first- 2012-post-opxbio-update.html 24 Terry, L. 2013. Arkema adds to U.S. March acrylates price-hike efforts.