Annualized capital cost

Refueling Loop E-7, Source Area ST20, Eielson AFB, Fairbanks, Alaska (thermally enhanced bioventing) Capital cost Annual O M Total cost/unit 758,077 177,160/yr 10-15/yd3 Pilot... 

System Capital cost Annual depreciation expense... 

Annual Capital Costs Annual Labor Costs Overhead 453 1600 375... 

Capital cost total Capital cost annualized (based on 9 year life)... 

Capital cost = annual capacity in tons X per annual ton of capacity from, published figures (Fig. 6-2) X cost index factor to bring Tip to date (Fig. 6-31). 

Capital cost = annual capacity in tons X product sales value in /ton -I- ratio... 

In the North Sea there is a weather window during the summer when it is possible to tow out platforms and complete the installation. If because of delays in construction the fabrication is finished in October instead of April, the six months delay may well cost a year s production. For a project costing 200 million generating an annual income of 50 million when on stream , the pay back period can be defined as capital cost/annual income, which in this case is 4 years. If the project is delayed 12 months and the interest charged on the 200 million is 25 per cent per annum, what then is the pay-back period and by how many years is the breakeven point delayed ... 

Increasing the chosen value of process energy consumption also increases all temperature differences available for heat recovery and hence decreases the necessary heat exchanger surface area (see Fig. 6.6). The network area can be distributed over the targeted number of units or shells to obtain a capital cost using Eq. (7.21). This capital cost can be annualized as detailed in App. A. The annualized capital cost can be traded off against the annual utility cost as shown in Fig. 6.6. The total cost shows a minimum at the optimal energy consumption. 

MW) Annual hot utility cost (10 yr ) Otnin arw) Annual cold utility cost (10 yr ) NETWORK vn) UNITS Annualized capital cost (10 yr ) Annualized total cost d0 yr )... 

Annualized heat exchanger capital cost = capital cost x — ... 

Annualized network capital cost = A uNiTsf 10,552 + network)... 

EP = value of products - raw materials costs - annualized capital cost - energy cost... 

The cost of the capital depends on its source. The source of the capital often will not be known during the early stages of a project, and yet there is a need to select between process options and carry out preliminary optimization on the basis of both capital and operating costs. This is difficult to do unless both capital and operating costs can be expressed on a common basis. Capital costs can be expressed on an annual basis if it is assumed that the capital has been borrowed over a fixed period (usually 5 to 10 years) at a fixed rate of interest, in which case the capital costs can be annualized according to... 

Take the capital cost and spread it as a series of equal annual payments A made at the end of each year over n years. The first payment gains interest over (n — 1) years, and its future value after (n - 1) years is... 

When using annualized capital cost to carry out optimization, the designer should not lose sight of the uncertainties involved in the capital annualization. In particular, changing the annualization period can lead to very different results when, for example, carrying... 

A low temperature of approach for the network reduces utihties but raises heat-transfer area requirements. Research has shown that for most of the pubhshed problems, utility costs are normally more important than annualized capital costs. For this reason, AI is chosen eady in the network design as part of the first tier of the solution. The temperature of approach, AI, for the network is not necessarily the same as the minimum temperature of approach, AT that should be used for individual exchangers. This difference is significant for industrial problems in which multiple shells may be necessary to exchange the heat requited for a given match (5). The economic choice for AT depends on whether the process environment is heater- or refrigeration-dependent and on the shape of the composite curves, ie, whether approximately parallel or severely pinched. In cmde-oil units, the range of AI is usually 10—20°C. By definition, AT A AT. The best relative value of these temperature differences depends on the particular problem under study. 

Annual iadirect costs are estimated as percentages of the direct labor and fixed capital costs. Typical direct labor percentage ranges are 25—30% for payroll overhead, 15—20% for stores and suppHes, 10—20% for control laboratory, 10—20% for security, 10% for yard, and 10—15% for process improvements. That is, total iadirect costs are usually 80—115% of the direct labor cost (1). 

The most common approach to fixed cost estimation iavolves the use of a capital recovery factor to give the annual depreciation and return on capital. This factor typically is between 15 and 20% of the total capital investment. Property taxes are taken as 1—5% of the fixed capital and iasurance is assumed to be 1—2% of the fixed capital. If annual depreciation is estimated separately, it is assumed to be about 10% of the fixed capital investment. The annual iaterest expense is sometimes neglected as an expense ia preliminary studies. Some economists even beHeve that iaterest should be treated as a return on capital and not as part of the manufactufing expense. 

The total annual return rate on investment is the sum of both the capital cost rate, ie, discount rate, and the net return rate (NRR). Any given numerical value can represent a low capital cost rate and a high net return rate, or a high capital cost rate and a low net return rate. The IRR, as the discounting rate that gives a vanishing net return, cannot be related to the total return rate at appropriate discount rates because of the nonlinear nature of the discounting step. 

On the basis of sum-of-years-digits depreciation, the annual amount of depreciation for a specified number of years s for a plant of fixed-capital cost Cpc, scrap v ue S, and service life s is given by... 

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... 

Net annual cash income after tax A ci = 25,500 in each of 10 years Fixed-capital cost Cpc = 120,000... 

FIG. 9-6 Effect of straight-line depreciation on rate of return for a project. Abd — annual depreciation allowance A c/ = annual net cash income after tax Awwp = annual net profit after payment of tax Cj = total capital cost. 

Example 1 Capitalized Cost of Equipment Apiece of equipment has been installed at a cost of 100,000 and is expected to have a working life of 10 years with a scrap value of 20,000. Let us calculate the capitalized cost of the equipment based on an annual compound-interest rate of 5 percent. 

In this case, the lives of the machines are unequal, and the comparison is conveniently made on the basis of capitalized cost. This puts lives on the same basis, which is an infinite number of years. The net annual cash flows generated by each machine are equal. 

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 discounted-cash-flow rate of return (DCFRR) and net present value (NPV) are functions of the cumulative revenue from annual sales X AfE and the fixed-capital cost of the plant Cfc, among other factors. 

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. 

Let us consider a plant of fixed-capital cost Cfc- If the annual property taxes are taken as 0.02 Cfc, insurance as 0.01 Cfc, and maintenance as 0.06 Cfc, the annual investment-related cost woiild be 0.09 Cfc- Annual utilities cost is A. The annual processing cost Ap can be represented by... 

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