8132019 Chemical Process Design - Economic Evaluation
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8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 218
2
ECONOMIC EVALUATION
1- Economic aspects of the preliminary design
2- Cost Estimates
3- Capital Investment
4- Manufacturing cost
5- Simple measures to estimate earnings and return on investment
6- Profitability Measures
7- Further Reading and References
8132019 Chemical Process Design - Economic Evaluation
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3
1- Economic aspects of the preliminary design
MaximumPotential Profit
(MPP)
Maximum Potential Profit
Design using hierarchical levels of decision (Levels of Douglas)
Use of hierarchical levels to estimate the potential profit
Profitabilitycriteria
Processalternatives
analysis
983108983145983142983142983141983154983141983150983156
983141983155983156983145983149983137983156983145983151983150 983148983141983158983141983148983155
983106983137983155983141983140 983151983150 983156983084 991404983084
983145983150983156983141983154983141983155983156 983154983137983156983141
983082 983118983151983150983085983108983145983155983139983151983157983150983156983141983140
983082 983108983145983155983139983151983157983150983156983141983140
983080983156983145983149983141 983158983137983148983157983141 983151983142 983149983151983150983141983161983081
8132019 Chemical Process Design - Economic Evaluation
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4
1st
Estimation (PP1)[Incomes from productsale]-[Annual cost of raw
materials]
2nd Estimation (PP2)[Incomes from product sale] -
[Annual cost of raw materials] ndash [Manufacturing costs]
3rd Estimation (PP3) [Incomesfrom product sale] - [Annual
cost of raw materials] ndash[Manufacturing costs]ndash
[Capital costs]
bullImportance of the stoichiometrybull Levels 1 and 2 of Douglas decision
bullKnowledge of PFD
bullKnowledge of energetic needs
bullLevels 1-5 of Douglas decision
bullCapital investment andmanufacturing cost estimation
PP1 gt 0
PP2 gt 0
1- Economic aspects of the preliminary design
8132019 Chemical Process Design - Economic Evaluation
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5
2- Cost Estimates Costs related to the process
bullCAPITAL INVESTMENT or CAPITAL COST (Inversion de Capital) [euro]Fixed Capital (Capital Fijo o Inmovilizado)
portion of the total fixed capital that is invested in fixed assets to build thephysical process itself that stay in the business almost permanently or at the
very least for more than one accounting period
land buildings machinery vehicles and equipment patents incidental expenses(estimation adjustments)
Working Capital (Capital Circulante)
represents funds required to operate the plant due to delays in paymentand maintenance of inventories
the money available to fill the tanks (solvents catalysts industrial and configured consumerproducts) and meet the initial payroll and expenses
Startup Cost (Coste de Arranque)
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot]
Direct Costs (Costes de Fabricacioacuten Directos) Vary with the rate of production
Fixed Costs (Costes de Fabricacioacuten Fijos) Not affected by the production levelGeneral Expenses (Gastos Generales) Associated with management level andadministrative activities not directly related with the manufacturing process
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6
(CAPITAL INVESTMENT or CAPITAL COST ndash CTCI
-) (Inversion de capital) [euro]
A- Guthrie s modular method based on individual factors to preliminary design Updated Bare Module Cost = BMC = UF BC (MPF + MF -1)
+ Contingencies and Contractoracutes fee = 18 BMC
CTBM (Total bare-module cost) ΣΣΣΣ(BMC) of the process equipment
CTCI = CTPI + CWC = 118 (CTBM + Csite + Cbuildings + Coffsite facilities) + CWC
CTCI = 118 (135 CTBM) + CWC
CTBM Total Bare-module Investment CTCI Total Capital Investment CTPI Total Permanent Investment
CWC Working Capital Csite Cost of site preparation = 10-20 CTBM
Cbuildings Process and non-process buildings = 10 CTBM and 20 CTBM
Coffsite facilities Utility plants and pollution control = 5 CTBM
B- Method of Lang bases on overall factor to study estimate CTCI = 105 fLTCI ΣΣΣΣ (IiIbi) CPi
bull 105 to account for delivery of the equipment to the plant site
bull fLTCI Lang Factors in function of the processing plant (solids solids-fluids fluids)
lowast Σlowast Σlowast Σlowast Σ (IiIbi) CPi Total purchase cost as sum of the updated equipment cost data
C- Method based in estimation of the capital cost components
3- Capital investment
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7
3- Capital investment
C- Method based in estimation of the capital cost components
Basecost forequip- ment
BC
On-Site Cost - Installation - Supervision - Taxes
BC(MF-1) 4 BC
Indirect Costs-Constructionoverhead -Own Engineering
025 x (on-site + off- site)
Off-site Cost -Equipment to supplyprocess utilities - Site developmentAuxiliary buildings
045 (on-site)
Σ= Fixed Capital =18x(on-site) = 72 BC
Fixed Capital 18 x (on-site) =
72 BC
Plant startup costs - Equipmentperformance andpersonnel01 x Fixed Capital
Working Capital - Early plant
operation Cost ofraw materials and
value of products015 x Capital Costs
Σ= Capital Costs =13 x Fixed Capital =
94 x BC
M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
Equipment life 10 years
Annual Interest
15
Annualized TotalCapital Costs
CT10 (115) 10 =
4 x BC [euroyear]
Capital Costs TCI = 94 x BC
N o n
N o n - - M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
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8
4- Manufacturing Cost
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot] (COM)
Direct Manufacturing Costs (DMC) Vary with production rate
Fixed Manufacturing Costs (FMC) Independent of changes in production rate
General Manufacturing Expenses (GE) Business functions and seldom vary
with production level
COM = DMC + FMC + GE
COM can be determined when the following costs can be estimated
1- Base Module Cost BMC2- Operating Labor COL
3- Utilities CUT
4- Waste treatment CWT
5- Raw Materials CRM
COM = 0304 BMC + 273 COL + 123 (CUT+CWT+CRM)
The Service Factor need to be known = Nordm days in operation during the year 365
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9
9
Factor Description of Factor Value
1 Direct Costs (DC) Factors that vary with rate of production =
CRM+ CWT + CUT + 133COL + 003COM + 0069BMC
CRM+ CWT + CUT + 133COL
+ 003COM + 0069BMC
Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM
Waste treatment Costs of waste treatment CWT
Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT
Operating Labor Cost of personnel for plant operations COL
Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL
Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC
Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)
(01-02)BMC
Laboratory charges Costs of laboratory tests of quality control (01-02)COL
Patents and Royalties Costs of using patented or licensed technology (0-006)COM
2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC
0708COL +0168BMC
Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes
01BMC
Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC
Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)
(05-07)COL+BMC
3 General Expenses(GE)
Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM
0177COL+0009BMC+016COM
Administration Costs Salaries and other administration 0325(COL+(002-01) BMC
Distribution and Selling Sales and marketing required to sell products (002-02)COM
Research amp Development Costs of RampD activities related to the process 005COM
4- Manufacturing Cost
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10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
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5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
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12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
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13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
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6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
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Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
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16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
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Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
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7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
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2
ECONOMIC EVALUATION
1- Economic aspects of the preliminary design
2- Cost Estimates
3- Capital Investment
4- Manufacturing cost
5- Simple measures to estimate earnings and return on investment
6- Profitability Measures
7- Further Reading and References
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 318
3
1- Economic aspects of the preliminary design
MaximumPotential Profit
(MPP)
Maximum Potential Profit
Design using hierarchical levels of decision (Levels of Douglas)
Use of hierarchical levels to estimate the potential profit
Profitabilitycriteria
Processalternatives
analysis
983108983145983142983142983141983154983141983150983156
983141983155983156983145983149983137983156983145983151983150 983148983141983158983141983148983155
983106983137983155983141983140 983151983150 983156983084 991404983084
983145983150983156983141983154983141983155983156 983154983137983156983141
983082 983118983151983150983085983108983145983155983139983151983157983150983156983141983140
983082 983108983145983155983139983151983157983150983156983141983140
983080983156983145983149983141 983158983137983148983157983141 983151983142 983149983151983150983141983161983081
8132019 Chemical Process Design - Economic Evaluation
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4
1st
Estimation (PP1)[Incomes from productsale]-[Annual cost of raw
materials]
2nd Estimation (PP2)[Incomes from product sale] -
[Annual cost of raw materials] ndash [Manufacturing costs]
3rd Estimation (PP3) [Incomesfrom product sale] - [Annual
cost of raw materials] ndash[Manufacturing costs]ndash
[Capital costs]
bullImportance of the stoichiometrybull Levels 1 and 2 of Douglas decision
bullKnowledge of PFD
bullKnowledge of energetic needs
bullLevels 1-5 of Douglas decision
bullCapital investment andmanufacturing cost estimation
PP1 gt 0
PP2 gt 0
1- Economic aspects of the preliminary design
8132019 Chemical Process Design - Economic Evaluation
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5
2- Cost Estimates Costs related to the process
bullCAPITAL INVESTMENT or CAPITAL COST (Inversion de Capital) [euro]Fixed Capital (Capital Fijo o Inmovilizado)
portion of the total fixed capital that is invested in fixed assets to build thephysical process itself that stay in the business almost permanently or at the
very least for more than one accounting period
land buildings machinery vehicles and equipment patents incidental expenses(estimation adjustments)
Working Capital (Capital Circulante)
represents funds required to operate the plant due to delays in paymentand maintenance of inventories
the money available to fill the tanks (solvents catalysts industrial and configured consumerproducts) and meet the initial payroll and expenses
Startup Cost (Coste de Arranque)
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot]
Direct Costs (Costes de Fabricacioacuten Directos) Vary with the rate of production
Fixed Costs (Costes de Fabricacioacuten Fijos) Not affected by the production levelGeneral Expenses (Gastos Generales) Associated with management level andadministrative activities not directly related with the manufacturing process
8132019 Chemical Process Design - Economic Evaluation
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6
(CAPITAL INVESTMENT or CAPITAL COST ndash CTCI
-) (Inversion de capital) [euro]
A- Guthrie s modular method based on individual factors to preliminary design Updated Bare Module Cost = BMC = UF BC (MPF + MF -1)
+ Contingencies and Contractoracutes fee = 18 BMC
CTBM (Total bare-module cost) ΣΣΣΣ(BMC) of the process equipment
CTCI = CTPI + CWC = 118 (CTBM + Csite + Cbuildings + Coffsite facilities) + CWC
CTCI = 118 (135 CTBM) + CWC
CTBM Total Bare-module Investment CTCI Total Capital Investment CTPI Total Permanent Investment
CWC Working Capital Csite Cost of site preparation = 10-20 CTBM
Cbuildings Process and non-process buildings = 10 CTBM and 20 CTBM
Coffsite facilities Utility plants and pollution control = 5 CTBM
B- Method of Lang bases on overall factor to study estimate CTCI = 105 fLTCI ΣΣΣΣ (IiIbi) CPi
bull 105 to account for delivery of the equipment to the plant site
bull fLTCI Lang Factors in function of the processing plant (solids solids-fluids fluids)
lowast Σlowast Σlowast Σlowast Σ (IiIbi) CPi Total purchase cost as sum of the updated equipment cost data
C- Method based in estimation of the capital cost components
3- Capital investment
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7
3- Capital investment
C- Method based in estimation of the capital cost components
Basecost forequip- ment
BC
On-Site Cost - Installation - Supervision - Taxes
BC(MF-1) 4 BC
Indirect Costs-Constructionoverhead -Own Engineering
025 x (on-site + off- site)
Off-site Cost -Equipment to supplyprocess utilities - Site developmentAuxiliary buildings
045 (on-site)
Σ= Fixed Capital =18x(on-site) = 72 BC
Fixed Capital 18 x (on-site) =
72 BC
Plant startup costs - Equipmentperformance andpersonnel01 x Fixed Capital
Working Capital - Early plant
operation Cost ofraw materials and
value of products015 x Capital Costs
Σ= Capital Costs =13 x Fixed Capital =
94 x BC
M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
Equipment life 10 years
Annual Interest
15
Annualized TotalCapital Costs
CT10 (115) 10 =
4 x BC [euroyear]
Capital Costs TCI = 94 x BC
N o n
N o n - - M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
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8
4- Manufacturing Cost
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot] (COM)
Direct Manufacturing Costs (DMC) Vary with production rate
Fixed Manufacturing Costs (FMC) Independent of changes in production rate
General Manufacturing Expenses (GE) Business functions and seldom vary
with production level
COM = DMC + FMC + GE
COM can be determined when the following costs can be estimated
1- Base Module Cost BMC2- Operating Labor COL
3- Utilities CUT
4- Waste treatment CWT
5- Raw Materials CRM
COM = 0304 BMC + 273 COL + 123 (CUT+CWT+CRM)
The Service Factor need to be known = Nordm days in operation during the year 365
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9
9
Factor Description of Factor Value
1 Direct Costs (DC) Factors that vary with rate of production =
CRM+ CWT + CUT + 133COL + 003COM + 0069BMC
CRM+ CWT + CUT + 133COL
+ 003COM + 0069BMC
Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM
Waste treatment Costs of waste treatment CWT
Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT
Operating Labor Cost of personnel for plant operations COL
Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL
Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC
Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)
(01-02)BMC
Laboratory charges Costs of laboratory tests of quality control (01-02)COL
Patents and Royalties Costs of using patented or licensed technology (0-006)COM
2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC
0708COL +0168BMC
Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes
01BMC
Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC
Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)
(05-07)COL+BMC
3 General Expenses(GE)
Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM
0177COL+0009BMC+016COM
Administration Costs Salaries and other administration 0325(COL+(002-01) BMC
Distribution and Selling Sales and marketing required to sell products (002-02)COM
Research amp Development Costs of RampD activities related to the process 005COM
4- Manufacturing Cost
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10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
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11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
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12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
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13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
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14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
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15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
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18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
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3
1- Economic aspects of the preliminary design
MaximumPotential Profit
(MPP)
Maximum Potential Profit
Design using hierarchical levels of decision (Levels of Douglas)
Use of hierarchical levels to estimate the potential profit
Profitabilitycriteria
Processalternatives
analysis
983108983145983142983142983141983154983141983150983156
983141983155983156983145983149983137983156983145983151983150 983148983141983158983141983148983155
983106983137983155983141983140 983151983150 983156983084 991404983084
983145983150983156983141983154983141983155983156 983154983137983156983141
983082 983118983151983150983085983108983145983155983139983151983157983150983156983141983140
983082 983108983145983155983139983151983157983150983156983141983140
983080983156983145983149983141 983158983137983148983157983141 983151983142 983149983151983150983141983161983081
8132019 Chemical Process Design - Economic Evaluation
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4
1st
Estimation (PP1)[Incomes from productsale]-[Annual cost of raw
materials]
2nd Estimation (PP2)[Incomes from product sale] -
[Annual cost of raw materials] ndash [Manufacturing costs]
3rd Estimation (PP3) [Incomesfrom product sale] - [Annual
cost of raw materials] ndash[Manufacturing costs]ndash
[Capital costs]
bullImportance of the stoichiometrybull Levels 1 and 2 of Douglas decision
bullKnowledge of PFD
bullKnowledge of energetic needs
bullLevels 1-5 of Douglas decision
bullCapital investment andmanufacturing cost estimation
PP1 gt 0
PP2 gt 0
1- Economic aspects of the preliminary design
8132019 Chemical Process Design - Economic Evaluation
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5
2- Cost Estimates Costs related to the process
bullCAPITAL INVESTMENT or CAPITAL COST (Inversion de Capital) [euro]Fixed Capital (Capital Fijo o Inmovilizado)
portion of the total fixed capital that is invested in fixed assets to build thephysical process itself that stay in the business almost permanently or at the
very least for more than one accounting period
land buildings machinery vehicles and equipment patents incidental expenses(estimation adjustments)
Working Capital (Capital Circulante)
represents funds required to operate the plant due to delays in paymentand maintenance of inventories
the money available to fill the tanks (solvents catalysts industrial and configured consumerproducts) and meet the initial payroll and expenses
Startup Cost (Coste de Arranque)
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot]
Direct Costs (Costes de Fabricacioacuten Directos) Vary with the rate of production
Fixed Costs (Costes de Fabricacioacuten Fijos) Not affected by the production levelGeneral Expenses (Gastos Generales) Associated with management level andadministrative activities not directly related with the manufacturing process
8132019 Chemical Process Design - Economic Evaluation
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6
(CAPITAL INVESTMENT or CAPITAL COST ndash CTCI
-) (Inversion de capital) [euro]
A- Guthrie s modular method based on individual factors to preliminary design Updated Bare Module Cost = BMC = UF BC (MPF + MF -1)
+ Contingencies and Contractoracutes fee = 18 BMC
CTBM (Total bare-module cost) ΣΣΣΣ(BMC) of the process equipment
CTCI = CTPI + CWC = 118 (CTBM + Csite + Cbuildings + Coffsite facilities) + CWC
CTCI = 118 (135 CTBM) + CWC
CTBM Total Bare-module Investment CTCI Total Capital Investment CTPI Total Permanent Investment
CWC Working Capital Csite Cost of site preparation = 10-20 CTBM
Cbuildings Process and non-process buildings = 10 CTBM and 20 CTBM
Coffsite facilities Utility plants and pollution control = 5 CTBM
B- Method of Lang bases on overall factor to study estimate CTCI = 105 fLTCI ΣΣΣΣ (IiIbi) CPi
bull 105 to account for delivery of the equipment to the plant site
bull fLTCI Lang Factors in function of the processing plant (solids solids-fluids fluids)
lowast Σlowast Σlowast Σlowast Σ (IiIbi) CPi Total purchase cost as sum of the updated equipment cost data
C- Method based in estimation of the capital cost components
3- Capital investment
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7
3- Capital investment
C- Method based in estimation of the capital cost components
Basecost forequip- ment
BC
On-Site Cost - Installation - Supervision - Taxes
BC(MF-1) 4 BC
Indirect Costs-Constructionoverhead -Own Engineering
025 x (on-site + off- site)
Off-site Cost -Equipment to supplyprocess utilities - Site developmentAuxiliary buildings
045 (on-site)
Σ= Fixed Capital =18x(on-site) = 72 BC
Fixed Capital 18 x (on-site) =
72 BC
Plant startup costs - Equipmentperformance andpersonnel01 x Fixed Capital
Working Capital - Early plant
operation Cost ofraw materials and
value of products015 x Capital Costs
Σ= Capital Costs =13 x Fixed Capital =
94 x BC
M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
Equipment life 10 years
Annual Interest
15
Annualized TotalCapital Costs
CT10 (115) 10 =
4 x BC [euroyear]
Capital Costs TCI = 94 x BC
N o n
N o n - - M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
8132019 Chemical Process Design - Economic Evaluation
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8
4- Manufacturing Cost
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot] (COM)
Direct Manufacturing Costs (DMC) Vary with production rate
Fixed Manufacturing Costs (FMC) Independent of changes in production rate
General Manufacturing Expenses (GE) Business functions and seldom vary
with production level
COM = DMC + FMC + GE
COM can be determined when the following costs can be estimated
1- Base Module Cost BMC2- Operating Labor COL
3- Utilities CUT
4- Waste treatment CWT
5- Raw Materials CRM
COM = 0304 BMC + 273 COL + 123 (CUT+CWT+CRM)
The Service Factor need to be known = Nordm days in operation during the year 365
8132019 Chemical Process Design - Economic Evaluation
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9
9
Factor Description of Factor Value
1 Direct Costs (DC) Factors that vary with rate of production =
CRM+ CWT + CUT + 133COL + 003COM + 0069BMC
CRM+ CWT + CUT + 133COL
+ 003COM + 0069BMC
Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM
Waste treatment Costs of waste treatment CWT
Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT
Operating Labor Cost of personnel for plant operations COL
Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL
Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC
Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)
(01-02)BMC
Laboratory charges Costs of laboratory tests of quality control (01-02)COL
Patents and Royalties Costs of using patented or licensed technology (0-006)COM
2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC
0708COL +0168BMC
Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes
01BMC
Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC
Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)
(05-07)COL+BMC
3 General Expenses(GE)
Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM
0177COL+0009BMC+016COM
Administration Costs Salaries and other administration 0325(COL+(002-01) BMC
Distribution and Selling Sales and marketing required to sell products (002-02)COM
Research amp Development Costs of RampD activities related to the process 005COM
4- Manufacturing Cost
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10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
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11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
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12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
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13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
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14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
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15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 418
4
1st
Estimation (PP1)[Incomes from productsale]-[Annual cost of raw
materials]
2nd Estimation (PP2)[Incomes from product sale] -
[Annual cost of raw materials] ndash [Manufacturing costs]
3rd Estimation (PP3) [Incomesfrom product sale] - [Annual
cost of raw materials] ndash[Manufacturing costs]ndash
[Capital costs]
bullImportance of the stoichiometrybull Levels 1 and 2 of Douglas decision
bullKnowledge of PFD
bullKnowledge of energetic needs
bullLevels 1-5 of Douglas decision
bullCapital investment andmanufacturing cost estimation
PP1 gt 0
PP2 gt 0
1- Economic aspects of the preliminary design
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 518
5
2- Cost Estimates Costs related to the process
bullCAPITAL INVESTMENT or CAPITAL COST (Inversion de Capital) [euro]Fixed Capital (Capital Fijo o Inmovilizado)
portion of the total fixed capital that is invested in fixed assets to build thephysical process itself that stay in the business almost permanently or at the
very least for more than one accounting period
land buildings machinery vehicles and equipment patents incidental expenses(estimation adjustments)
Working Capital (Capital Circulante)
represents funds required to operate the plant due to delays in paymentand maintenance of inventories
the money available to fill the tanks (solvents catalysts industrial and configured consumerproducts) and meet the initial payroll and expenses
Startup Cost (Coste de Arranque)
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot]
Direct Costs (Costes de Fabricacioacuten Directos) Vary with the rate of production
Fixed Costs (Costes de Fabricacioacuten Fijos) Not affected by the production levelGeneral Expenses (Gastos Generales) Associated with management level andadministrative activities not directly related with the manufacturing process
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 618
6
(CAPITAL INVESTMENT or CAPITAL COST ndash CTCI
-) (Inversion de capital) [euro]
A- Guthrie s modular method based on individual factors to preliminary design Updated Bare Module Cost = BMC = UF BC (MPF + MF -1)
+ Contingencies and Contractoracutes fee = 18 BMC
CTBM (Total bare-module cost) ΣΣΣΣ(BMC) of the process equipment
CTCI = CTPI + CWC = 118 (CTBM + Csite + Cbuildings + Coffsite facilities) + CWC
CTCI = 118 (135 CTBM) + CWC
CTBM Total Bare-module Investment CTCI Total Capital Investment CTPI Total Permanent Investment
CWC Working Capital Csite Cost of site preparation = 10-20 CTBM
Cbuildings Process and non-process buildings = 10 CTBM and 20 CTBM
Coffsite facilities Utility plants and pollution control = 5 CTBM
B- Method of Lang bases on overall factor to study estimate CTCI = 105 fLTCI ΣΣΣΣ (IiIbi) CPi
bull 105 to account for delivery of the equipment to the plant site
bull fLTCI Lang Factors in function of the processing plant (solids solids-fluids fluids)
lowast Σlowast Σlowast Σlowast Σ (IiIbi) CPi Total purchase cost as sum of the updated equipment cost data
C- Method based in estimation of the capital cost components
3- Capital investment
8132019 Chemical Process Design - Economic Evaluation
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7
3- Capital investment
C- Method based in estimation of the capital cost components
Basecost forequip- ment
BC
On-Site Cost - Installation - Supervision - Taxes
BC(MF-1) 4 BC
Indirect Costs-Constructionoverhead -Own Engineering
025 x (on-site + off- site)
Off-site Cost -Equipment to supplyprocess utilities - Site developmentAuxiliary buildings
045 (on-site)
Σ= Fixed Capital =18x(on-site) = 72 BC
Fixed Capital 18 x (on-site) =
72 BC
Plant startup costs - Equipmentperformance andpersonnel01 x Fixed Capital
Working Capital - Early plant
operation Cost ofraw materials and
value of products015 x Capital Costs
Σ= Capital Costs =13 x Fixed Capital =
94 x BC
M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
Equipment life 10 years
Annual Interest
15
Annualized TotalCapital Costs
CT10 (115) 10 =
4 x BC [euroyear]
Capital Costs TCI = 94 x BC
N o n
N o n - - M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
8132019 Chemical Process Design - Economic Evaluation
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8
4- Manufacturing Cost
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot] (COM)
Direct Manufacturing Costs (DMC) Vary with production rate
Fixed Manufacturing Costs (FMC) Independent of changes in production rate
General Manufacturing Expenses (GE) Business functions and seldom vary
with production level
COM = DMC + FMC + GE
COM can be determined when the following costs can be estimated
1- Base Module Cost BMC2- Operating Labor COL
3- Utilities CUT
4- Waste treatment CWT
5- Raw Materials CRM
COM = 0304 BMC + 273 COL + 123 (CUT+CWT+CRM)
The Service Factor need to be known = Nordm days in operation during the year 365
8132019 Chemical Process Design - Economic Evaluation
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9
9
Factor Description of Factor Value
1 Direct Costs (DC) Factors that vary with rate of production =
CRM+ CWT + CUT + 133COL + 003COM + 0069BMC
CRM+ CWT + CUT + 133COL
+ 003COM + 0069BMC
Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM
Waste treatment Costs of waste treatment CWT
Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT
Operating Labor Cost of personnel for plant operations COL
Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL
Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC
Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)
(01-02)BMC
Laboratory charges Costs of laboratory tests of quality control (01-02)COL
Patents and Royalties Costs of using patented or licensed technology (0-006)COM
2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC
0708COL +0168BMC
Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes
01BMC
Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC
Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)
(05-07)COL+BMC
3 General Expenses(GE)
Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM
0177COL+0009BMC+016COM
Administration Costs Salaries and other administration 0325(COL+(002-01) BMC
Distribution and Selling Sales and marketing required to sell products (002-02)COM
Research amp Development Costs of RampD activities related to the process 005COM
4- Manufacturing Cost
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1018
10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
8132019 Chemical Process Design - Economic Evaluation
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11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
8132019 Chemical Process Design - Economic Evaluation
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12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
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13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
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14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
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15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
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5
2- Cost Estimates Costs related to the process
bullCAPITAL INVESTMENT or CAPITAL COST (Inversion de Capital) [euro]Fixed Capital (Capital Fijo o Inmovilizado)
portion of the total fixed capital that is invested in fixed assets to build thephysical process itself that stay in the business almost permanently or at the
very least for more than one accounting period
land buildings machinery vehicles and equipment patents incidental expenses(estimation adjustments)
Working Capital (Capital Circulante)
represents funds required to operate the plant due to delays in paymentand maintenance of inventories
the money available to fill the tanks (solvents catalysts industrial and configured consumerproducts) and meet the initial payroll and expenses
Startup Cost (Coste de Arranque)
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot]
Direct Costs (Costes de Fabricacioacuten Directos) Vary with the rate of production
Fixed Costs (Costes de Fabricacioacuten Fijos) Not affected by the production levelGeneral Expenses (Gastos Generales) Associated with management level andadministrative activities not directly related with the manufacturing process
8132019 Chemical Process Design - Economic Evaluation
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6
(CAPITAL INVESTMENT or CAPITAL COST ndash CTCI
-) (Inversion de capital) [euro]
A- Guthrie s modular method based on individual factors to preliminary design Updated Bare Module Cost = BMC = UF BC (MPF + MF -1)
+ Contingencies and Contractoracutes fee = 18 BMC
CTBM (Total bare-module cost) ΣΣΣΣ(BMC) of the process equipment
CTCI = CTPI + CWC = 118 (CTBM + Csite + Cbuildings + Coffsite facilities) + CWC
CTCI = 118 (135 CTBM) + CWC
CTBM Total Bare-module Investment CTCI Total Capital Investment CTPI Total Permanent Investment
CWC Working Capital Csite Cost of site preparation = 10-20 CTBM
Cbuildings Process and non-process buildings = 10 CTBM and 20 CTBM
Coffsite facilities Utility plants and pollution control = 5 CTBM
B- Method of Lang bases on overall factor to study estimate CTCI = 105 fLTCI ΣΣΣΣ (IiIbi) CPi
bull 105 to account for delivery of the equipment to the plant site
bull fLTCI Lang Factors in function of the processing plant (solids solids-fluids fluids)
lowast Σlowast Σlowast Σlowast Σ (IiIbi) CPi Total purchase cost as sum of the updated equipment cost data
C- Method based in estimation of the capital cost components
3- Capital investment
8132019 Chemical Process Design - Economic Evaluation
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7
3- Capital investment
C- Method based in estimation of the capital cost components
Basecost forequip- ment
BC
On-Site Cost - Installation - Supervision - Taxes
BC(MF-1) 4 BC
Indirect Costs-Constructionoverhead -Own Engineering
025 x (on-site + off- site)
Off-site Cost -Equipment to supplyprocess utilities - Site developmentAuxiliary buildings
045 (on-site)
Σ= Fixed Capital =18x(on-site) = 72 BC
Fixed Capital 18 x (on-site) =
72 BC
Plant startup costs - Equipmentperformance andpersonnel01 x Fixed Capital
Working Capital - Early plant
operation Cost ofraw materials and
value of products015 x Capital Costs
Σ= Capital Costs =13 x Fixed Capital =
94 x BC
M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
Equipment life 10 years
Annual Interest
15
Annualized TotalCapital Costs
CT10 (115) 10 =
4 x BC [euroyear]
Capital Costs TCI = 94 x BC
N o n
N o n - - M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
8132019 Chemical Process Design - Economic Evaluation
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8
4- Manufacturing Cost
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot] (COM)
Direct Manufacturing Costs (DMC) Vary with production rate
Fixed Manufacturing Costs (FMC) Independent of changes in production rate
General Manufacturing Expenses (GE) Business functions and seldom vary
with production level
COM = DMC + FMC + GE
COM can be determined when the following costs can be estimated
1- Base Module Cost BMC2- Operating Labor COL
3- Utilities CUT
4- Waste treatment CWT
5- Raw Materials CRM
COM = 0304 BMC + 273 COL + 123 (CUT+CWT+CRM)
The Service Factor need to be known = Nordm days in operation during the year 365
8132019 Chemical Process Design - Economic Evaluation
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9
9
Factor Description of Factor Value
1 Direct Costs (DC) Factors that vary with rate of production =
CRM+ CWT + CUT + 133COL + 003COM + 0069BMC
CRM+ CWT + CUT + 133COL
+ 003COM + 0069BMC
Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM
Waste treatment Costs of waste treatment CWT
Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT
Operating Labor Cost of personnel for plant operations COL
Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL
Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC
Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)
(01-02)BMC
Laboratory charges Costs of laboratory tests of quality control (01-02)COL
Patents and Royalties Costs of using patented or licensed technology (0-006)COM
2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC
0708COL +0168BMC
Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes
01BMC
Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC
Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)
(05-07)COL+BMC
3 General Expenses(GE)
Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM
0177COL+0009BMC+016COM
Administration Costs Salaries and other administration 0325(COL+(002-01) BMC
Distribution and Selling Sales and marketing required to sell products (002-02)COM
Research amp Development Costs of RampD activities related to the process 005COM
4- Manufacturing Cost
8132019 Chemical Process Design - Economic Evaluation
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10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
8132019 Chemical Process Design - Economic Evaluation
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11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
8132019 Chemical Process Design - Economic Evaluation
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12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1318
13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
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15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 618
6
(CAPITAL INVESTMENT or CAPITAL COST ndash CTCI
-) (Inversion de capital) [euro]
A- Guthrie s modular method based on individual factors to preliminary design Updated Bare Module Cost = BMC = UF BC (MPF + MF -1)
+ Contingencies and Contractoracutes fee = 18 BMC
CTBM (Total bare-module cost) ΣΣΣΣ(BMC) of the process equipment
CTCI = CTPI + CWC = 118 (CTBM + Csite + Cbuildings + Coffsite facilities) + CWC
CTCI = 118 (135 CTBM) + CWC
CTBM Total Bare-module Investment CTCI Total Capital Investment CTPI Total Permanent Investment
CWC Working Capital Csite Cost of site preparation = 10-20 CTBM
Cbuildings Process and non-process buildings = 10 CTBM and 20 CTBM
Coffsite facilities Utility plants and pollution control = 5 CTBM
B- Method of Lang bases on overall factor to study estimate CTCI = 105 fLTCI ΣΣΣΣ (IiIbi) CPi
bull 105 to account for delivery of the equipment to the plant site
bull fLTCI Lang Factors in function of the processing plant (solids solids-fluids fluids)
lowast Σlowast Σlowast Σlowast Σ (IiIbi) CPi Total purchase cost as sum of the updated equipment cost data
C- Method based in estimation of the capital cost components
3- Capital investment
8132019 Chemical Process Design - Economic Evaluation
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7
3- Capital investment
C- Method based in estimation of the capital cost components
Basecost forequip- ment
BC
On-Site Cost - Installation - Supervision - Taxes
BC(MF-1) 4 BC
Indirect Costs-Constructionoverhead -Own Engineering
025 x (on-site + off- site)
Off-site Cost -Equipment to supplyprocess utilities - Site developmentAuxiliary buildings
045 (on-site)
Σ= Fixed Capital =18x(on-site) = 72 BC
Fixed Capital 18 x (on-site) =
72 BC
Plant startup costs - Equipmentperformance andpersonnel01 x Fixed Capital
Working Capital - Early plant
operation Cost ofraw materials and
value of products015 x Capital Costs
Σ= Capital Costs =13 x Fixed Capital =
94 x BC
M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
Equipment life 10 years
Annual Interest
15
Annualized TotalCapital Costs
CT10 (115) 10 =
4 x BC [euroyear]
Capital Costs TCI = 94 x BC
N o n
N o n - - M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
8132019 Chemical Process Design - Economic Evaluation
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8
4- Manufacturing Cost
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot] (COM)
Direct Manufacturing Costs (DMC) Vary with production rate
Fixed Manufacturing Costs (FMC) Independent of changes in production rate
General Manufacturing Expenses (GE) Business functions and seldom vary
with production level
COM = DMC + FMC + GE
COM can be determined when the following costs can be estimated
1- Base Module Cost BMC2- Operating Labor COL
3- Utilities CUT
4- Waste treatment CWT
5- Raw Materials CRM
COM = 0304 BMC + 273 COL + 123 (CUT+CWT+CRM)
The Service Factor need to be known = Nordm days in operation during the year 365
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 918
9
9
Factor Description of Factor Value
1 Direct Costs (DC) Factors that vary with rate of production =
CRM+ CWT + CUT + 133COL + 003COM + 0069BMC
CRM+ CWT + CUT + 133COL
+ 003COM + 0069BMC
Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM
Waste treatment Costs of waste treatment CWT
Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT
Operating Labor Cost of personnel for plant operations COL
Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL
Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC
Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)
(01-02)BMC
Laboratory charges Costs of laboratory tests of quality control (01-02)COL
Patents and Royalties Costs of using patented or licensed technology (0-006)COM
2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC
0708COL +0168BMC
Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes
01BMC
Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC
Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)
(05-07)COL+BMC
3 General Expenses(GE)
Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM
0177COL+0009BMC+016COM
Administration Costs Salaries and other administration 0325(COL+(002-01) BMC
Distribution and Selling Sales and marketing required to sell products (002-02)COM
Research amp Development Costs of RampD activities related to the process 005COM
4- Manufacturing Cost
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1018
10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1118
11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1218
12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1318
13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
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15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
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17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 718
7
3- Capital investment
C- Method based in estimation of the capital cost components
Basecost forequip- ment
BC
On-Site Cost - Installation - Supervision - Taxes
BC(MF-1) 4 BC
Indirect Costs-Constructionoverhead -Own Engineering
025 x (on-site + off- site)
Off-site Cost -Equipment to supplyprocess utilities - Site developmentAuxiliary buildings
045 (on-site)
Σ= Fixed Capital =18x(on-site) = 72 BC
Fixed Capital 18 x (on-site) =
72 BC
Plant startup costs - Equipmentperformance andpersonnel01 x Fixed Capital
Working Capital - Early plant
operation Cost ofraw materials and
value of products015 x Capital Costs
Σ= Capital Costs =13 x Fixed Capital =
94 x BC
M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
Equipment life 10 years
Annual Interest
15
Annualized TotalCapital Costs
CT10 (115) 10 =
4 x BC [euroyear]
Capital Costs TCI = 94 x BC
N o n
N o n - - M a n u f a c t u r i n g C a p i t a l
M a n u f a c t u r i n g C a p i t a l
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 818
8
4- Manufacturing Cost
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot] (COM)
Direct Manufacturing Costs (DMC) Vary with production rate
Fixed Manufacturing Costs (FMC) Independent of changes in production rate
General Manufacturing Expenses (GE) Business functions and seldom vary
with production level
COM = DMC + FMC + GE
COM can be determined when the following costs can be estimated
1- Base Module Cost BMC2- Operating Labor COL
3- Utilities CUT
4- Waste treatment CWT
5- Raw Materials CRM
COM = 0304 BMC + 273 COL + 123 (CUT+CWT+CRM)
The Service Factor need to be known = Nordm days in operation during the year 365
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 918
9
9
Factor Description of Factor Value
1 Direct Costs (DC) Factors that vary with rate of production =
CRM+ CWT + CUT + 133COL + 003COM + 0069BMC
CRM+ CWT + CUT + 133COL
+ 003COM + 0069BMC
Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM
Waste treatment Costs of waste treatment CWT
Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT
Operating Labor Cost of personnel for plant operations COL
Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL
Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC
Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)
(01-02)BMC
Laboratory charges Costs of laboratory tests of quality control (01-02)COL
Patents and Royalties Costs of using patented or licensed technology (0-006)COM
2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC
0708COL +0168BMC
Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes
01BMC
Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC
Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)
(05-07)COL+BMC
3 General Expenses(GE)
Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM
0177COL+0009BMC+016COM
Administration Costs Salaries and other administration 0325(COL+(002-01) BMC
Distribution and Selling Sales and marketing required to sell products (002-02)COM
Research amp Development Costs of RampD activities related to the process 005COM
4- Manufacturing Cost
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1018
10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1118
11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1218
12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1318
13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1518
15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 818
8
4- Manufacturing Cost
bullMANUFACTURING COSTS (Costes de fabricacion) [eurot] (COM)
Direct Manufacturing Costs (DMC) Vary with production rate
Fixed Manufacturing Costs (FMC) Independent of changes in production rate
General Manufacturing Expenses (GE) Business functions and seldom vary
with production level
COM = DMC + FMC + GE
COM can be determined when the following costs can be estimated
1- Base Module Cost BMC2- Operating Labor COL
3- Utilities CUT
4- Waste treatment CWT
5- Raw Materials CRM
COM = 0304 BMC + 273 COL + 123 (CUT+CWT+CRM)
The Service Factor need to be known = Nordm days in operation during the year 365
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 918
9
9
Factor Description of Factor Value
1 Direct Costs (DC) Factors that vary with rate of production =
CRM+ CWT + CUT + 133COL + 003COM + 0069BMC
CRM+ CWT + CUT + 133COL
+ 003COM + 0069BMC
Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM
Waste treatment Costs of waste treatment CWT
Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT
Operating Labor Cost of personnel for plant operations COL
Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL
Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC
Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)
(01-02)BMC
Laboratory charges Costs of laboratory tests of quality control (01-02)COL
Patents and Royalties Costs of using patented or licensed technology (0-006)COM
2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC
0708COL +0168BMC
Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes
01BMC
Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC
Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)
(05-07)COL+BMC
3 General Expenses(GE)
Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM
0177COL+0009BMC+016COM
Administration Costs Salaries and other administration 0325(COL+(002-01) BMC
Distribution and Selling Sales and marketing required to sell products (002-02)COM
Research amp Development Costs of RampD activities related to the process 005COM
4- Manufacturing Cost
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1018
10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1118
11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1218
12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1318
13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1518
15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 918
9
9
Factor Description of Factor Value
1 Direct Costs (DC) Factors that vary with rate of production =
CRM+ CWT + CUT + 133COL + 003COM + 0069BMC
CRM+ CWT + CUT + 133COL
+ 003COM + 0069BMC
Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM
Waste treatment Costs of waste treatment CWT
Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT
Operating Labor Cost of personnel for plant operations COL
Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL
Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC
Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)
(01-02)BMC
Laboratory charges Costs of laboratory tests of quality control (01-02)COL
Patents and Royalties Costs of using patented or licensed technology (0-006)COM
2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC
0708COL +0168BMC
Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes
01BMC
Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC
Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)
(05-07)COL+BMC
3 General Expenses(GE)
Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM
0177COL+0009BMC+016COM
Administration Costs Salaries and other administration 0325(COL+(002-01) BMC
Distribution and Selling Sales and marketing required to sell products (002-02)COM
Research amp Development Costs of RampD activities related to the process 005COM
4- Manufacturing Cost
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1018
10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1118
11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1218
12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1318
13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1518
15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1018
10
4- Manufacturing Cost
Cost of Raw Materials ndash CRM
- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)
Cost of waste treatment ndash CWT
- Legal framework minimization IPPC BAT Technologies BREF Documents
Utility Cost - CUT
CUT = a x (CE Plant Cost Index) + b x Csf
ab Coefficient cost for different kind of utilities
CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility
Cost of Operating Labor - COL
- Annual Operator Salary ($) = 41600 x (103)year-2003
-Operator Requirements for process equipment per shift
49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear
[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear
BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1118
11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1218
12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1318
13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1518
15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1118
11
5- Simple Estimate Earnings and Returns
bull Earnings
- Pre-tax earnings or Gross earnings or Profit = S - C
S Annual sales revenue C COM Manufacturing Costs
- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on
the gross earnings = (1-t) Gross earnings = 06 (S-C)
t Income tax rate = Cte in function of the local law
bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an
investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow
-Annual CF for any year of the project
CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip
D Depreciation decrease in value of an asset over time (use obsolescence old age)
f fraction of the total depreciable capital (CTDC)
CWC Working capital Cland Cost of land expended during the year of construction
Cstartup Startup Costs Croyal Cost of royalties
Sequip Salvage value for used equipment
CF plant operation CF plant construction
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1218
12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1318
13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1518
15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1218
12
6- Profitability Measures
Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping
Non-Discounted Techniques (Time value of money is ignored
and straight-line depreciation is used )
- Return of investment (ROI) Payback period (PBP) venture profit
(VP) Annualized cost (AC)
Rigorous Profitability Measures Useful before a final decision is made
on whether to proceed with a new venture
Discounted Techniques (involve the time value of money in
terms of discounted cash flows)
- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1318
13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1518
15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1318
13
6- Profitability Measures
Non-discounted criteria
Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )
Time required for the annual earnings to equal the original investment
PBP (years) = Total Depreciable Capital (euro) Net earnings + annual
depreciation (euroyear) = CTDC (1-t) (S-C) + D
PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable
rdquouseful in early evaluations to compare alternativesrdquo
Based on interest rate
Return of Investment (ROI) (Retorno de la Inversioacuten )
Annual interest rate made by the profits on the original investment
ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable
rdquoprovides a snapshot view of the profitability of the plantrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1518
15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1418
14
6- Profitability Measures
Non-discounted criteria
Taking into account the size of the project
Venture profit (VP)
Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)
VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI
rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo
Based on interest rateAnnualized Costs (CA)
Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02
CA = C + iminCTCI
rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1518
15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1518
15
Discounted criteria
The ldquotime value of moneyrdquo recognised that an amount of money at the current
time Present amount P that is invested at an interest rate i and the interest is
added to P the amount of money at the future date will be a Future amount F ne P
F= P (1+i)n
The change of the time value of money are due to
- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business
- INFLATION or change in the value of a currency over time
Net Present Value (NPV) Valor Actual Neto (VAN)
Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases
NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment
rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1618
16
Discounted criteria
Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)
Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment
NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0
Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if
its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable
ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo
6- Profitability Measures
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1718
17
Economic AssessmentEconomic Assessment
DiferentialCash Flow
NPV and IRRNPV and IRR Intangible aspects
Intangible aspects
Payback Period -PBP
Payback Period -PBP
Combined Analysis
Environmental AssessmentEnvironmental Assessment
Technical AssessmentTechnical Assessment
lt3 years gt10 years
3-10 years
Figure 7 Suitability analysis of the minimization options
Design of wastes minimization
alternatives Application of criteria
(Viguri et al 2000)
Viguri J 2000 ldquo Environmental situation of the SME in Cantabria
Minimization of the environmental impact rdquo Final Inform Project from
the enterprise development initiative Santander Spain Sep 2000
6- Profitability Measures
Memo 3 are to size the equipment of the flowsheet perform
heat integration and an economic evaluation
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall
8132019 Chemical Process Design - Economic Evaluation
httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 1818
18
7- Further Reading and References
bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall
bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill
bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for
Chemical Engineers 5ordf Ed McGraw-Hill
bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons
bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall