ENGINEERING ECONOMICS III ESTIMATING THE PROFITABILITY OF A CHEMICAL PLANT ◆ Estimating investment Q Estimating Cost of production ◆ Profitability evaluation E Return on Investment(ROI Payout time(①py) E DCF Rate ofReturn (DCFROR E Transfer price 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 1 ENGINEERING ECONOMICS III ESTIMATING THE PROFITABILITY OF A CHEMICAL PLANT t Estimating Investment t Estimating Cost of Production t Profitability Evaluation ð Return on Investment (ROI) ð Payout time (Tpay) ð DCF Rate of Return (DCFROR) ð Transfer Price
INVESTMENT ESTIMATION ◆ Total investment= Fixed Capital+ Working Capital+ start-Up Tiny= Fcap ◆ Rules of thumb Wcap 0.15 Tiny Stup.1 Fcap(Established nth/ plant C0.5 Fcap(First-of-a-King/ Pioneer/ plant So Tinv= Fcap+O. Fcap+o15 Tiny 1.3 Fcap(nth Plant 1.8 Fcap(Pioneer plant 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 2 INVESTMENT ESTIMATION t Total Investment = Fixed Capital + Working Capital + Start-Up Tinv = Fcap + Wcap + Stup t Rules of Thumb Wcap ~ 0.15 Tinv Stup ~ 0.1 Fcap (Established [nth] Plant) ~ 0.5 Fcap (First-of-a-King [Pioneer] Plant) So: Tinv = Fcap + 0.1 Fcap + 0.15 Tinv = 1.3 Fcap (nth Plant) = 1.8 Fcap (Pioneer Plant)
FIXED CAPITAL ESTIMATION I 4 Fixed Capital= Direct Cost Indirect cost o Direct Cost=Onsite offsite E Onsite. Cost of plant facilities shown on flowsheet aka isbl (Inside battery limits E offsite-Cost of supporting facilities(boiler house, waste treatment facilities, shop, lab, offices, etc) aka Osbl (Outside Battery limits ◆ Rule of Thumb offsite-045 Onsite(higher for grassroots plant, lower for established manufacturing complex with excess facilities 10/21/99 Engineering economics 3 3
10/21/99 Engineering Economics 3 3 FIXED CAPITAL ESTIMATION I t Fixed Capital = Direct Cost + Indirect Cost t Direct Cost = Onsite + Offsite ð Onsite - Cost of plant facilities shown on flowsheet aka ISBL (Inside Battery Limits) ð Offsite - Cost of supporting facilities (boiler house, waste treatment facilities, shop, lab, offices, etc.) aka OSBL (Outside Battery Limits) t Rule of Thumb Offsite ~ 0.45 Onsite (higher for grassroots plant, lower for established manufacturing complex with excess facilities)
FIXED CAPITAL ESTIMATION I o Direct cost =1. 45 onsite o Indirect Cost =Owner's Cost Contingency E Owner's Cost- engineering, supervision, construction expenses Rule of Thumb: Owner's Cost=0.05(Onsite +offsite 5 Contingency- Allowance for overlooked items and otherun anticipated expenses Rule of Thumb: Contingency=0.20(Onsite +Offsite A So, Fcap=(1. 45) (1.25)Onsite =1.8 Onsite Q And, Tiny=(1.3)(1. 8)Onsite=2.36 Onsite 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 4 FIXED CAPITAL ESTIMATION II t Direct Cost = 1.45 Onsite t Indirect Cost = Owner’s Cost + Contingency ð Owner’s Cost - engineering, supervision, construction expenses Rule of Thumb: Owner’s Cost = 0.05 (Onsite + Offsite) ð Contingency - Allowance for overlooked items and other unanticipated expenses Rule of Thumb: Contingency = 0.20(Onsite + Offsite) t So, Fcap = (1.45)(1.25) Onsite = 1.8 Onsite t And, Tinv = (1.3)(1.8) Onsite = 2.36 Onsite
ESTIMATION OF EQUIPMENT COSTS o Onsite= Cost of equipment purchase and installation ◆ Types of Estimates 5 Definitive: Required for capital commitment(+/-5%) Based on detailed design 2 Use vendor quotes, detailed bill of materials, etc. E Factored: Required for process commitment (+/-15% Based on detailed equipment design and purchased cost prcing a Based on factored installation costs E Conceptual: Used to guide process development(+/-30%) a Based on correlations(Guthrie) for installed cost 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 5 ESTIMATION OF EQUIPMENT COSTS t Onsite = Cost of Equipment Purchase and Installation t Types of Estimates ð Definitive : Required for capital commitment (+/- 5%) X Based on detailed design X Use vendor quotes, detailed bill of materials, etc. ð Factored: Required for process commitment (+/- 15%) X Based on detailed equipment design and purchased cost pricing X Based on factored installation costs ð Conceptual: Used to guide process development (+/- 30%) X Based on correlations (Guthrie) for installed cost