Start-up expenses

The working capital includes the cost of inventories, such as raw materials, materials-in-process, products, etc as well as suppHes, accounts receivable less accounts payable, prepaid expenses, other cash needs such as payroll, and some start-up expenses, eg, materials and wages. Typical inventories can be taken as one month s supply of raw materials, products, and materials-in-process. The materials-in-process can be valued at one month s sales. Other operating cash can be estimated as the actual cash need for one month. 

Raw material costs should be estimated by direct computation from flow rates and material prices. The flow rates are deterrnined from flow sheet material balances. The unit prices are obtained from vendors, company purchasing departments, or the Chemical Marketing Reporter. For captive raw materials produced internally, a suitable transfer price must be estabHshed. Initial catalyst charges can be treated as a start-up expense, working capital component, or depreciable capital, depending on the expected catalyst life and cost. Makeup catalyst is frequendy treated as a raw material. 

The expenses associated with each phase of the startup were estimated to develop the start-up expenses for this first of a kind project. This exercise helped greatly in developing the operating costs. 

Jack Products, a U.S. Class 1 railroad and North America s leading independent intermodal terminal operator, respectively, have invested 60 million for start-up expenses to revive and modernize the 143-year old first transcontinental railroad of the Americas. Fnlly operational in 2000, the revitalized railroad provides an efficient intermodal link for world commerce and complements the existing transportation provided by the canal, the Colon Free Trade Zone, and the port terminals. 

Fixed capital investment Offsite capital Allocated capital Working capital Start-up expenses... 

Land for the project is available at 300,000. The fixed capital investment was estimated to be 12,000,000. A working capital of 1,800,000 is needed initially for the venture. Start-up expenses based upon past experience are estimated to be 750,000. The project qualifies under IRS guidelines as a 5-year class life investment. The company uses MACRS depreciation with the half-year convention. At the conclusion of the prmect, the land and working capital are returned to management. Develop a cash flow analysis for this project, using a cumulative cash position table (Table 9-25). 

Figure 11.7 Start-up expenses [Source Miskin and Neuer, How to Grow Your Investigative Site, 2002]...

We may consider 1.25 that includes working capital and plant start-up expenses. capital charge depending on the depreciation policy. Dividing by 5 and denoting PBT=r leads to the equation ... 

Estimates of investmort and operating costs of Fischer-Tropsch plants were made in 1953 by the U.S. Bureau of Mines and the National Petroleum Council. The cost of a 27,000-bbl-per-day synthetic liquid-fuels plant using coal-steam-o (ygen pressure gasification was estimated at 290 milUon dollars, not including the costs for a coal mine, royalties, start-up expense, and working capital. With these items included, the total investment cost amounted to 380-400 million dollars, which is equivalent to about 514,500 per daily barrel of oil. 

An estimate is made of the number of hours of supervision required in normal manufacturing operations. The extra supervision needed during initial runs with the equipment is generally charged to start-up expenses. A supervisor s salary may range from S6,000 to 8,000 per year. 

Cash Flow Planning 2.4.1 Typical Start-up Expenses... 

---