economic analysis aiche
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Economic analysis
A. Estimated Total Capital Investment (TCI)Fixed Capital Investment ( FCI) was estimated by using the study estimate method
( Peters). Equipment cost was calculated in earlier section, and used to estimate FCI by
selected percentage range. Figure 1 showed that equipment cost was 24% of FCI.
Components Selected RangePercentage
RangeCost
purchased equipment 24 0.24 30.29purchased equipment installation 10 0.10 12.62instrumentation 8 0.08 10.10piping 7 0.07 8.83electrical 4 0.04 5.05buildings 4 0.04 5.05yard improvement 2 0.02 2.52service facilities 12 0.12 15.15land 0 0.00 0.00engineering and supervision 8 0.08 10.10construction expense 9 0.09 11.36legal expense 2 0.02 2.52contractor's fee 2 0.02 2.52contigency 8 0.08 10.10Total 100 1 126.21
Figure 1- Estimate of FCI for Direct ProcessThe working capital (WC) was assumed to be 15% of FCI, which was an average cost for a
chemical plant (Peters). The TCI was sum of FCI and WC, which was total of $145.15 million.
B. Total Product Cost (TPC)The next major component of an economic analysis is the total product cost
(TPC), which including the two major costs: manufacturing costs and general
expenses. The table below was the estimation of the TPC by calculating each
component in the TPC. Each component cost was calculated by using the FCI, raw
materials, utilities cost, and the operating labor costs. The table below showed every
component cost in the TPC. The percentage range was chosen according to Plant
Design book (Peters).
11.87111.214
0.15 of operating labor 11.214 1.682 41.657
0.06 of FCI 239.499 14.3700.15 of maintenance & repair14.370 2.1550.15 of operating labor 11.214 1.682
0.01 of c o 126.255 1.263
0 -- 0.00085.894
0.02 of FCI 239.499 4.7900 of FCI 239.499 0.000
0.01 of FCI 239.499 2.3950 of FCI 239.499 0.000
Calculated separately7.185
Plant overhead, general 0.6 of labor, supervision and maintenance27.266 16.36016.360
109.4390.2 of labor, supervision and maintenance27.266 5.453
0.05 of c o 126.255 6.313
0.04 of c o 126.255 5.050
16.816
ItemBasis cost,
million $/y
AdministrationDistribution & selling
Manufacturing cost =
General Expense =
TOTAL PRODUCT COST WITHOUT DEPRECIATION = c o = 126.255
Catalysts and solvents
Basis
Maintenance and repairs
Operating supervision
Raw materials Operating labor
Cost, million $/y
Default factor, user
may change
Depreciation
Utilities
Operating suppliesLaboratory charges
Royalties (if not on lump-sum basis)
Research & Development
Taxes (property)Financing (interest)
Plant Overhead =
Fixed Charges =
InsuranceRent
Variable cost =
Figure 2 – Estimate TPC for married process
C. Cumulative Cash Position (CCP)MACRS of 6 year was used for depreciation calculation because it depreciated the
equipment more rapidly and helped to reduce the amount of tax paid in first five years
and also generated more cash flow, which was used to repaid the capital costs. Two
processes, married and direct were developed through an Aspen Simulation. Based on
economic calculation, after ten years, the married process was able to generate a total
profit of $75 million, while the direct process lost around $65.58 million; therefore, the
married process was preferred due to the economic profitability. For the purpose of
increasing the project’s profit, a project life was extended out to ten years. Figure 4 was
the cash cumulative position graph, which indicated the capital cost was totally repaid in
between year 7th and 8th, and had a total of profit of $75 million.
Year -2 -1 0 1 2 3 4 5 6 7 8 9 10fix capital investment -18.93 -45.06 -65.65working capital -19.45total capital investment -18.93 -45.06 -85.10Start-up cost -12.96Operating Rate 0.50 0.90 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00Annual Sale 46.77 84.19 93.55 93.55 93.55 93.55 93.55 93.55 93.55 93.55annual factor 0.10 0.18 0.14 0.12 0.09 0.07 0.07 0.07 0.07 0.07annual depreciation 12.96 23.34 18.67 14.93 11.95 9.55 8.49 8.49 8.50 8.49annual total cost -48.87 -70.44 -77.10 -78.64 -80.21 -81.82 -83.46 -85.12 -86.83 -88.56Annual Gross Profit -28.03 -9.58 -2.22 -0.03 1.38 2.17 1.60 -0.07 -1.79 -3.51Annual Net Profit -28.03 -9.58 -2.22 -0.03 0.90 1.41 1.04 -0.07 -1.79 -3.51Annual Operating Cash Flow -18.93 -45.06 -85.10 -15.06 13.75 16.45 14.90 12.85 10.97 9.53 8.42 6.72 4.98Cummulative Cash Position -18.93 -63.99 -149.09 -164.15 -150.40 -133.95 -119.05 -106.20 -95.24 -85.70 -77.28 -70.57 -65.58
Figure 3 – Direct Process
Year -2 -1 0 1 2 3 4 5 6 7 8 9 100
2. Fixed Capital Investment -35.92 -85.50 -124.593. Working Capital -36.90 36.904. Salvage Value 05. Total Capital Investment -35.92 -85.50 -161.496. Annual Investment 0 0 0 0 0 0 0 0 0 07. Start-up cost -24.608. Operating rate 0.50 0.90 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.009. Annual sales 101.12 182.02 202.24 202.24 202.24 202.24 202.24 202.24 202.24 202.2410. Annual Total Product Cost -88.41 -127.36 -139.40 -142.18 -145.03 -147.93 -150.89 -153.90 -156.98 -160.1211. Annual depreciation factor 0.20 0.32 0.19 0.12 0.12 0.0612. Annual depreciation 49.20 78.72 47.23 28.34 28.34 14.1713. Annual Gross Profit -61.09 -24.07 15.61 31.72 28.87 40.14 51.35 48.34 45.26 42.1214. Annual Net Profit -61.09 -24.07 10.15 20.62 18.77 26.09 33.38 31.42 29.42 27.3815. Annual operating cash flow -11.89 54.65 57.38 48.96 47.11 40.26 33.38 31.42 29.42 27.3816. Total annual cash flow -35.92 -85.50 -161.49 -11.89 54.65 57.38 48.96 47.11 40.26 33.38 31.42 29.42 27.3817. Cumulative cash position -35.92 -121.43 -282.92 -294.80 -240.15 -182.77 -133.81 -86.71 -46.44 -13.06 18.36 47.77 75.15
Figure 4– Married Process
-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11
-350.00
-300.00
-250.00
-200.00
-150.00
-100.00
-50.00
0.00
50.00
100.00Cumulative Cash Position
Cumulative Cash Position
Figure 5 – Cash Cumulative Position
Where :
T = V + W + Ax
T – Total capital investment (TCI)
V – Manufacturing Fixed capital investment ( FCI)
Ax – Nonmanufacturing FCI
W – Working Capital Investment
Income Tax = (sj –coj –dj) φ
sj – total income or sale
coj – costs for operation
dj – depreciation charge
φ – tax rate
Gross Profit = sj –coj (before depreciation charge)
Net profit after tax = (sj –coj –dj) * (1-φ)
Net cash flow including depreciation charge = (sj –coj –dj) * (1-φ) + dj
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