Aswath Damodaran 243
Operating Assumptions
! The plant will be partly in commission in a couple of months, but will have a capacity of only 650 , 000 tons in the first
year, 700 , 000 tons in the second year before getting to its full capacity of 750 , 000 tons in the third year.
! The capacity utilization rate will be 90 % for the first 3 years, and rise to 95 % after that.
! The price per ton of linerboard is currently $ 400 , and is expected to keep pace with inflation for the life of the plant.
! The variable cost of production, primarily labor and material, is expected to be 55 % of total revenues; there is a fixed cost
of 50 Million BR, which will grow at the inflation rate.
! The working capital requirements are estimated to be 15 % of total revenues, and the investments have to be made at the
beginning of each year. At the end of the tenth year, it is anticipated that the entire working capital will be salvaged.
Many of these inputs were estimated by looking at similar plants run by Aracruz
and other paper and pulp manufacturers.
