Annual costs

The total annualized cost at the optimal setting of the capital/energy tradeoff is... 

The preceding definitions of economic potential and total annual cost can be simplified if it is accepted that they will be used to compare the relative merits of difierent structural options in the flowsheet and difierent settings of the operating parameters. Thus items which will be common to the options being compared can be neglected. 

Example A.4.1 The purchased cost of a distillation column is 1 million, and the reboiler and condenser are 100,000. Calculate the annual cost of installed capital if the capital is to be annualized over a 5-year period at a fixed rate of interest of 5 percent. 

Typically, the contractor carries the cost of exploration, appraisal and development, later claiming these costs form a tranche of the produced oil or gas ( cost oil ). If the cost oil allowance is insufficient to cover the annual costs (capex and opex), excess costs are usually deferred to the following year. After the deduction of royalty (if applicable) the remaining volume of production (called profit oil ) is then split between the contractor and the host government. The contractor will usually pay tax on the contractor s share of the profit oil. In diagrammatic form the split of production for a typical PSC is shown in Figure 13.11. 

Alternatively, those at the other end of the market speak proudly of their own exclusive server But the true financial costs of this can range from US 30-100 thousand annually. Costs increase (rapidly) with the sophistication of functions offered. On the other hand, increased function is the reason for buying a server ... 

Each year, Americans report over three million fires leading to 29,000 injuries and 4,500 deaths (1). The direct property losses exceed 8 biUion (1) and the total annual cost to our society has been estimated at over 100 biUion (2). Personal losses occur mosdy in residences where furniture, wall coverings, and clothes are frequently the fuel. Large financial losses occur in commercial stmctures such as office buildings and warehouses. Fires also occur in airplanes, buses, and trains. 

Annual plant maintenance and repair costs average about 6% of the fixed capital iavestment, but should be calculated directly from person—hour per shift data or estimates. The annual cost for suppHes can be taken as 15% of the total maintenance and repair cost. 

Annual Costs, Profits, and Cash Flows To a large extent, accountancy is concerned with annual costs. To avoid confusion with other costs, annual costs will be referred to by the letter A,... 

The revenue from the annual sales of product As, minus the total annual cost or expense required to produce and sell the product Af , excluding any annual provision for plant depreciation, is the annual cash income Ac( ... 

The relationships among the various annual costs given by Eqs. (9-1) through (9-9) are illustrated diagrammaticaUy in Fig. 9-1. The top half of the diagram shows the tools of the accountant the bottom half, those of the engineer. The net annual cash flow Acp, which excludes any provision for balance-sheet depreciation Abd, is used in two of the more modern methods of profitability assessment the net-present-value (NPV) method and the discounted-cash-flow-rate-of-return (DCFRR) method. In both methods, depreciation is inherently taken care of by calculations which include capital recoveiy. 

FIG. 9-1 Relationship between annual costs, annual profits, and cash flows for a project. A d — annual depreciation allowance Acf — annual net cash flow after tax Ac/ = annual cash income Age = annual general expense Aqp = annual gross profit A/r = annual tax A e = annual manufacturing cost Avc/ = annual net cash income Avvp = annual net profit after taxes A/ p = annual net profit As = annual sales Apc = annual total cost (DCFRR) = discoiinted-cash-flow rate of return (NPV) = net present value. 

A fourth method of computing depreciation (now seldom used) is the sinking-fund method. In this method, the annual depreciation A is the same for each year of the life of the equipment or plant. The series of equal amounts of depreciation Aq, invested at a fractional interest rate i and made at the end of each year over the life of the equipment or plant of s years, is used to build up a future sum of money equal to (Cpc S). This last is the fixed-capital cost of the equipment or plant minus its salvage or scrap value and is the total amount of depreciation during its useful life. The equation relating i Fc S) and Ao is simply the annual cost or payment equation, written either as... 

Annual Cost or Payment A series of equal annual payments A invested at a fractional interest rate i at the end of each year over a period of n years may be used to build up a future sum of money E These relations are given bv... 

The estimated (DCFRR) and the estimated (NPV) are both functions of the estimated cumulative revenue from annual sales X As, the estimated cumulative total annual cost or expense X Ate, and the estimated fixed capital cost Cfc of the plant. The revenue from annual sales for each year is in turn the product of the sales price and sales volume. Initially it is desirable to select those values from the distribution cui ves of X As, X Ate, and Cfc which enable the maximum and minimum (DCFRR) and (NPV) to be calculated. 

The cost of placing an order for materials is partly fixed and partly variable. The annual cost of ordering Aiq is given by... 

Material costs are conveniently presented in tables that give the following name of material, form and grade, method of dehveiy, unit of measure, cost per unit, source of cost, annual consumption, annual cost, fractional consumption per unit of production, and cost per unit of production. 

The current cost per unit for each utility is usually well known in a company. Thus, the annual cost for utilities and the utilities cost per unit of production can be estimated. The latter is normally much smaller than the raw-materials and labor costs. However, a great deal more work is involved in calculating the utilities cost than for any other item in the manufacturing cost. 

Miscellaneous Direct Costs Estimates for the cost of maintenance and repairs, operating supplies, royalties, and patents are best based on company records for similar processes. A rough average value for the annual cost of maintenance is 6 percent of the capital cost of the plant. This percentage can vaiy from 2 to 10 percent, depending on the severity of plant operation. Approximately half of the maintenance costs are for materials and half for labor. Royalty and patents costs are in the order of 1 to 5 percent of the sales price of the product. 

The annual cost of heat delivered by the heatpump is Qoy o, where the unit cost Cd is given by Eq. (9-240). Therefore, the annual saving on heating costs in dollars per year is Qoyi B d), which can also be written in terms of Eq. (9-238) as W(COP) y(cg — c ). 

Optimization of the liquid-to-gas ratio in terms of total annual costs often suggests that the molar fiquid-to-gas ratio Lm/G should be about 1.2 to 1.5 times the theoretical minimum corresponding to equilibrium at the rich end of the tower (infinite height), provided flooding is not a problem. This would be an alternative to assuming that L /G>i, — mlO.7, for example. 

The annualized capital cost (ACC) is the product of the CRF and TCC and represents the total instaUed equipment cost distributed over the lifetime of the project. The ACC reflects the cost associated with the initial capital outlay over the depreciable life of the system. Although investment and operating costs can be accounted for in other ways such as present-worth analysis, the capital recovery method is preferred because of its simplicity and versatUity. This is especiaUy true when comparing somewhat similar systems having different depreciable lives. In such decisions, there are usuaUy other considerations besides economic, but if all other factors are equal, the alternative with the lowest total annualized cost should be the most viable. 

Economics W hat are the economics involved Both first and annual costs must l)e considered. Future operation and iiuiintenance costs must )e assessed carefully. All factors Ixlng e( iial, e( iiipment produced l)v w (ll-estal)lished companies, having a proven histoiv of satisfactoiv operation, should l)e given appropriate consideration. 

Inhibitors The use of various substances or inhibitors as additives to corrosive environments to decrease corrosion of metals in the environment is an important means of combating corrosion. This is generally most attractive in closed or recirculating systems in which the annual cost of inhibitor is low. However, it has also proved to be economicaUv attrac tive for many once-through systems, such as those encountered in petroleum-processing operations. Inhibitors are effective as the result of their controlling influence on the cathode- or anode-area reactions. 

Fig. 22-4 Total repair costs (1) and (2) for wall penetrations (1) and (2) in Fig. 22-3 and comparison with total annual cost of cathodic protection at 400 DM km (3), at 3000 DM km (4), and with subsequent installation (400 DM km ) after...

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