Economic analysis

A. Estimated Total Capital Investment (TCI)Fixed Capital Investment ( FCI) was estimated by using the study estimate method

( Peters). Equipment cost was calculated in earlier section, and used to estimate FCI by

selected percentage range. Figure 1 showed that equipment cost was 24% of FCI.

Components Selected RangePercentage

RangeCost

purchased equipment 24 0.24 30.29purchased equipment installation 10 0.10 12.62instrumentation 8 0.08 10.10piping 7 0.07 8.83electrical 4 0.04 5.05buildings 4 0.04 5.05yard improvement 2 0.02 2.52service facilities 12 0.12 15.15land 0 0.00 0.00engineering and supervision 8 0.08 10.10construction expense 9 0.09 11.36legal expense 2 0.02 2.52contractor's fee 2 0.02 2.52contigency 8 0.08 10.10Total 100 1 126.21

Figure 1- Estimate of FCI for Direct ProcessThe working capital (WC) was assumed to be 15% of FCI, which was an average cost for a

chemical plant (Peters). The TCI was sum of FCI and WC, which was total of $145.15 million.

B. Total Product Cost (TPC)The next major component of an economic analysis is the total product cost

(TPC), which including the two major costs: manufacturing costs and general

expenses. The table below was the estimation of the TPC by calculating each

component in the TPC. Each component cost was calculated by using the FCI, raw

materials, utilities cost, and the operating labor costs. The table below showed every

component cost in the TPC. The percentage range was chosen according to Plant

Design book (Peters).

11.87111.214

0.15 of operating labor 11.214 1.682 41.657

0.06 of FCI 239.499 14.3700.15 of maintenance & repair14.370 2.1550.15 of operating labor 11.214 1.682

0.01 of c o 126.255 1.263

0 -- 0.00085.894

0.02 of FCI 239.499 4.7900 of FCI 239.499 0.000

0.01 of FCI 239.499 2.3950 of FCI 239.499 0.000

Calculated separately7.185

Plant overhead, general 0.6 of labor, supervision and maintenance27.266 16.36016.360

109.4390.2 of labor, supervision and maintenance27.266 5.453

0.05 of c o 126.255 6.313

0.04 of c o 126.255 5.050

16.816

ItemBasis cost,

million $/y

AdministrationDistribution & selling

Manufacturing cost =

General Expense =

TOTAL PRODUCT COST WITHOUT DEPRECIATION = c o = 126.255

Catalysts and solvents

Basis

Maintenance and repairs

Operating supervision

Raw materials Operating labor

Cost, million $/y

Default factor, user

may change

Depreciation

Utilities

Operating suppliesLaboratory charges

Royalties (if not on lump-sum basis)

Research & Development

Taxes (property)Financing (interest)

Plant Overhead =

Fixed Charges =

InsuranceRent

Variable cost =

Figure 2 – Estimate TPC for married process

C. Cumulative Cash Position (CCP)MACRS of 6 year was used for depreciation calculation because it depreciated the

equipment more rapidly and helped to reduce the amount of tax paid in first five years

and also generated more cash flow, which was used to repaid the capital costs. Two

processes, married and direct were developed through an Aspen Simulation. Based on

economic calculation, after ten years, the married process was able to generate a total

profit of $75 million, while the direct process lost around $65.58 million; therefore, the

married process was preferred due to the economic profitability. For the purpose of

increasing the project’s profit, a project life was extended out to ten years. Figure 4 was

the cash cumulative position graph, which indicated the capital cost was totally repaid in

between year 7th and 8th, and had a total of profit of $75 million.

Year -2 -1 0 1 2 3 4 5 6 7 8 9 10fix capital investment -18.93 -45.06 -65.65working capital -19.45total capital investment -18.93 -45.06 -85.10Start-up cost -12.96Operating Rate 0.50 0.90 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00Annual Sale 46.77 84.19 93.55 93.55 93.55 93.55 93.55 93.55 93.55 93.55annual factor 0.10 0.18 0.14 0.12 0.09 0.07 0.07 0.07 0.07 0.07annual depreciation 12.96 23.34 18.67 14.93 11.95 9.55 8.49 8.49 8.50 8.49annual total cost -48.87 -70.44 -77.10 -78.64 -80.21 -81.82 -83.46 -85.12 -86.83 -88.56Annual Gross Profit -28.03 -9.58 -2.22 -0.03 1.38 2.17 1.60 -0.07 -1.79 -3.51Annual Net Profit -28.03 -9.58 -2.22 -0.03 0.90 1.41 1.04 -0.07 -1.79 -3.51Annual Operating Cash Flow -18.93 -45.06 -85.10 -15.06 13.75 16.45 14.90 12.85 10.97 9.53 8.42 6.72 4.98Cummulative Cash Position -18.93 -63.99 -149.09 -164.15 -150.40 -133.95 -119.05 -106.20 -95.24 -85.70 -77.28 -70.57 -65.58

Figure 3 – Direct Process

Year -2 -1 0 1 2 3 4 5 6 7 8 9 100

2. Fixed Capital Investment -35.92 -85.50 -124.593. Working Capital -36.90 36.904. Salvage Value 05. Total Capital Investment -35.92 -85.50 -161.496. Annual Investment 0 0 0 0 0 0 0 0 0 07. Start-up cost -24.608. Operating rate 0.50 0.90 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.009. Annual sales 101.12 182.02 202.24 202.24 202.24 202.24 202.24 202.24 202.24 202.2410. Annual Total Product Cost -88.41 -127.36 -139.40 -142.18 -145.03 -147.93 -150.89 -153.90 -156.98 -160.1211. Annual depreciation factor 0.20 0.32 0.19 0.12 0.12 0.0612. Annual depreciation 49.20 78.72 47.23 28.34 28.34 14.1713. Annual Gross Profit -61.09 -24.07 15.61 31.72 28.87 40.14 51.35 48.34 45.26 42.1214. Annual Net Profit -61.09 -24.07 10.15 20.62 18.77 26.09 33.38 31.42 29.42 27.3815. Annual operating cash flow -11.89 54.65 57.38 48.96 47.11 40.26 33.38 31.42 29.42 27.3816. Total annual cash flow -35.92 -85.50 -161.49 -11.89 54.65 57.38 48.96 47.11 40.26 33.38 31.42 29.42 27.3817. Cumulative cash position -35.92 -121.43 -282.92 -294.80 -240.15 -182.77 -133.81 -86.71 -46.44 -13.06 18.36 47.77 75.15

Figure 4– Married Process

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11

-350.00

-300.00

-250.00

-200.00

-150.00

-100.00

-50.00

0.00

50.00

100.00Cumulative Cash Position

Cumulative Cash Position

Figure 5 – Cash Cumulative Position

Where :

T = V + W + Ax

T – Total capital investment (TCI)

V – Manufacturing Fixed capital investment ( FCI)

Ax – Nonmanufacturing FCI

W – Working Capital Investment

Income Tax = (sj –coj –dj) φ

sj – total income or sale

coj – costs for operation

dj – depreciation charge

φ – tax rate

Gross Profit = sj –coj (before depreciation charge)

Net profit after tax = (sj –coj –dj) * (1-φ)

Net cash flow including depreciation charge = (sj –coj –dj) * (1-φ) + dj