Capital charge factor

The capital charge factor (/3) multiplied by the capital cost of the plant (Co) gives the cost of servicing the total capital required. Suppose the capital costs of a plant at the beginning of the first year is Co and the plant has a life of N years so an annual amount must be provided which is (Co/ + B). The first term (CoO is the simple interest payment and the second (B) matures into the capital repayment after N years (i.e. interest added to the accumulated sum at the end of each year), thus... 

Detailed estimates similar to Table XIX were carried out for each case. The results are summarized and compared on Table XX. Factors used for labor, maintenance, taxes, and insurance are typical of those used for analyzing long-term, large scale commercial projects. The capital charge factor, the yearly rate at which the investment is charged to the project, was chosen to provide about a 15% after-tax discounted cash flow (DCF) rate of return on investment based on reasonable and commonly used assumptions for projects of this type and magnitude. These assumptions are summarized on Table XVIII. 

Process Capital investment (Smillion) Annualized capital cost ( ) (capital charge factor, 0.17) Minimum ethanol selling price ( /gal ethanol) Conversion of hexose to EtOH ... 

Purchased cost factor, pipes Capital charges factor, piping Maintenance cost factor, piping... 

The total number of trays is a compromise between the total equipment cost and the total utility cost. The optimum total number of trays and the optimum feed-tray location are determined to minimize TAC. The calculation procedure of Douglas is followed with the annual capital charge factor of 1 /3. The utility costs include the steam and cooling water for the operation of reboiler and condenser. The total operating costs include the utility costs and the entrainer makeup cost. The Aspen Plus simulation results for the three entrainers are summarized in Tables 9.10 to 9.12. 

As can be seen from this analysis, the natural gas feedstock and capital charges amount to over 93% of the total production cost before return on investment. Therefore, energy consumption and capital investment are the key factors in determining ammonia production profitabiUty. 

In a modem operation the cost of production is made up of the factors shown in Table 3. The feedstocks account for more than 90% of the cost. Other operating costs, such as utihties, labor, and capital charges, make up the difference. 

Even if the power factor correction capacitance consumes no energy it will need capital investment, and therefore the consumer must balance the capital charges of this equipment against the savings which it produces in the energy bill. It is not normally economic to correct the power factor to its theoretically maximum value of unity, and a value of 0.9-0.95 is more usual. 

Although primary catalyst cost is not a major factor in the price of the product, the work of the catalyst chemist of course crucially affects a wide variety of process costs that are of far greater significance. What goes on in the reactor dictates feedstock requirements, capital charges, downtime for catalyst recharging, and strongly influences the purification problems... 

Electricity Cost Capital charges 20% ann. capacity factor 14% of capital per yr MM/yr 0.669 /kWh Sunny location like CA 0.081 ... 

These examples illustrate the principle that, wherever feasible, reaction conditions, catalysts, etc., are selected and developed in such a way that the rate of a commercial process is maximized. In doing so the size of the processing units required for a given volume of production is reduced, in this way decreasing the costs of construction. Reducing the capital costs also reduces the capital charge per unit of product, which decreases the price required from the product to still operate at a profit. In these ways, improvement of the rate of a chemical process becomes a further contributing factor in the market competitiveness of the chemical industry. 

The first thing to note in Table 3.4 is the relative ratio of the capital costs between cases 2 and 3. With reference to Fig. 3.5, to be competitive on a capital cost basis, with a ratio of production of 25, the capital would have to be intensified by a factor of 3 to achieve a similar capital cost contribution. Despite the close coupling of the units and the combination of heat exchange and reaction, this is not the case here the capital charge in gah is about twice as high in the distributed case, as can be seen in the ROl line. In the latter scenario, however, use is made of the fact that there is a co-production of power to far offset the higher capital cost of production. 

The production cost of limestone depends on a number of factors. The nature of the deposit can be important massive deposits with little overburden, horizontal strata and consistent physical/chemical properties favour low extraction costs, particularly if linked with a large-scale operation. Selection of appropriate equipment to keep the combined costs of labour, capital charges and other operating costs to a minimum is important to ensure a strong competitive position (see chapters 4 and 5). 

In determining the overall product price, a capital recovery factor (CRF) is first applied to the SCC to obtain a capital charge in dollars per million Btu of product energy. The maintenance and feedstock costs are added to this, resulting in the following product cost equation ... 

Table 27.9, a table of capital recovery factors, enables us to calculate the equivalent uniform annual cost (EUAC). The 120,000 figure is our base (No. 1 in Table 27.9). In conventional accounting, this would likely determine the capital charge the department manager would see on the income statement if the company used straight-line depreciation. It represents only depreciation of the asset. Using a 15 percent cost of capital...

The capital charge is less sensitive to the cost of capital. A 20 percent rate produces only a 10 percent change over a 15 percent rate (No. 4 in Table 27.9). A 10 percent rate produces a 14 percent reduction (No. 5 in Table 27.9). The economic life is a much more important factor than the firm s cost of capital. No matter what assumptions are used, it is apparent that conventional accounting significantly understates the cost of capitalized assets, whether they are equipment or inventory. 

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