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Expenditures for quality enhancement may result in improved profit 

 margins through an increase in the realizable selling price, or may simply 

 allow a facility to maintain its competitiveness in a market which is 

 experiencing increased quality demands from its customers. 



In general terms, the relatively low capital requirement for this type of 

 expenditure, in combination with a relatively minor impact on the life 

 expectancy of a facility, result in rate of return expectations of 

 approximately 20% to 30%, and a required project life of 5 to 15 years. 



Replacement/Maintenance 



This type of capital expenditure includes the replacement of components 

 or equipment as required to maintain productivity, cost structure, or 

 product quality. By definition, these expenditures do not enhance the 

 sales volume or margin potential of a facility and therefore are difficult for 

 companies to justify based on rate of return expectations. 



Large investments which result in the total replacement of a major section 

 of a production line can be referred to as a major replacement. Since this 

 type of replacement will often result in a significant increase in life 

 expectancy of a facility, similar to a major rebuild investment as described 

 above, but is not typically made for the purpose of significant improvement 

 in revenues or margins, companies will typically require a project life of 15 

 to 20 years to realize an adequate return on the investment. 



Environmental 



Capital expenditure for environmental purposes within the pulp and paper 

 industry is often required in order to maintain compliance with 

 environmental regulations. In this regard, environmental expenditures are 

 similar to maintenance expenditures in that they have no direct impact on. 

 the sales volume or margin potential of a facility and therefore are also 

 difficult for companies to justify based on rate of return expectations. To 

 the degree that environmental expenditures are required in order for a 

 facility to operate and realize the full potential of prior investments, the 

 expected rate of return will be lower, and the required project life to realize 

 that return will be longer than expectations for new construction or a major 

 rebuild. 



KETCHIKAN PULP COMPANY'S REQUEST FOR EXTENSION 



Jaakko Poyry's knowledge of the capital program being considered by 

 Ketchikan is limited to the aggregate value of the expenditure, US $200 

 million, the estimated completion of the expenditure, 5 to 8 years hence, 

 and a general description as provided by Ketchikan, which described the 



