Capital equipment investments

There can be an element of maintenance costs that is fixed and an element which is variable. Fixed maintenance costs cover routine maintenance such as regular maintenance on safety valves which must be carried out irrespective of the rate of production. There also can be an element of maintenance costs which is variable. This arises from the fact that certain items of equipment can need more maintenance as the production rate increases. Also, royalties which cover the cost of purchasing another company s process technology may have different bases. Royalties may be a variable cost, since they can sometimes be paid in proportion to the rate of production. Alternatively, the royalty might be a single-sum payment at the beginning of the project. In this case, the single-sum payment will become part of the project s capital investment. As such, it will be included in the annual capital repayment, and this becomes part of the fixed cost. 

One of the main surface equipment items typically required for gas fields is compression, which is installed to allow a low reservoir pressure to be attained. Gas compression takes up a large space and is expensive. If gas compression is not initially required on a platform, then its installation is usually delayed until it becomes necessary. This reduces the initial capital investment and capital exposure. Figure 8.12 indicates when gas compression is typically installed ... 

Finally, analytical methods can be compared in terms of their need for equipment, the time required to complete an analysis, and the cost per sample. Methods relying on instrumentation are equipment-intensive and may require significant operator training. For example, the graphite furnace atomic absorption spectroscopic method for determining lead levels in water requires a significant capital investment in the instrument and an experienced operator to obtain reliable results. Other methods, such as titrimetry, require only simple equipment and reagents and can be learned quickly. 

Because of the rapid capital investment in acryUcs that occurred in the early 1970s, there is a large excess capacity. In 1981 worldwide demand was 2.1 X 10 kg whereas worldwide capacity was 2.6 X 10 kg. Prices have consequendy been soft since 1977. Since that time there has been only rninimal investment in plants or equipment and a curtailment ia research and development work. 

The most common method of converting iron ore to metallic iron utilizes a blast furnace wherein the material is melted to form hot metal (pig iron). Approximately 96% of the world s iron is produced this way (see Iron). However, in the blast furnace process energy costs are relatively high, pollution problems of associated equipment are quite severe, and capital investment requirements are often prohibitively expensive. In comparison to the blast furnace method, direct reduction permits a wider choice of fuels, is environmentally clean, and requires a much lower capital investment. 

Some details of this new process have been pubUshed by UOP (86). UOP claims equal or better LAB product quaUty via the fixed-bed process compared with the conventional Hquid-phase process employing HP acid catalyst. The new technology requites approximately 15% lower capital investment, mosdy the result of the elimination of safety equipment and equipment related to HP acid neutralization. 

In the United States, the Clean Air Act of 1990 requires plants to reduce emissions of 189 toxic and carcinogenic substances such as chlorine, chloroform, and 2,3,7,8-TCDD (dioxin) by 90% over the 1990s. The U.S. Environmental Protection Agency is working to develop standards based on maximum achievable control technologies and the industry has invested bUHons of doUars in capital investments to retrofit or rebuUd plant equipment to meet these measures. 

As with SMC, appHcations are limited to high volume because of the capital investment in equipment and tooling. Thermoset compression molders require additional heating and material Handling equipment to adapt their process to thermoplastic sheet fabrication. AppHcations include automotive bumper beams, load floors, radiator supports, battery trays, and package shelves. Chair sheUs, military containers, material Handling pallets, trays, and concrete foaming pans are also produced. 

The three general types of cost estimates needed are equipment cost, capital investment cost, and product cost. Equipment cost estimates are needed as part of the capital investment estimate, which indicates the amount of money that is needed to start the venture. Both of these estimates are reflected in the product cost estimate, which is important to both management and marketing groups. 

A second order-of-magnitude approach is the ratio method, based on the assumption that capital investment can be correlated with plant capacity in a manner similar to that used for equipment. This gives... 

An overall Lange factor, E- j can be used to relate the battery-limits fixed capital investment Jg to the deHvered equipment cost Eg, so that... 

The investment consists of the fixed capital, eg, equipment, buildings, and faciUties land cost and working capital. Interest charges during constmction are frequently considered part of the fixed capital. This is called capitalization of the constmction interest expense. Part of the start-up costs are occasionally treated in the same manner. 

The nondepreciable investments, ie, land and working capital, are often assumed to be constant preoperational costs that are fully recoverable at cost when the project terminates. Equipment salvage is another end-of-life item that can represent a significant fraction of the original fixed capital investment. However, salvage occurs at the end of life, can be difficult to forecast, and is partially offset by dismantling costs. Eor these reasons, a zero salvage assumption is a reasonable approximation ia preliminary analysis. 

In the past, income tax could be reduced by an investment tax credit. This item, designed to stimulate iavestment, was a tax credit amounting to some percentage of the new capital investment ia certain eligible types of production equipment. It was credited when the investment was made and could be used to offset the tax due, until exhausted, for a prescribed period of years. This credit was eliminated ia the United States for most equipment ia 1986, but is frequently advocated for investment stimulation. 

Total Capital Cost The installed cost of the fixed-capital investment Cpc is obviously an essential item which must be forecast before an investment decision can be made. It forms pai4 of the total capital investment Cfc, defined by Eq. (9-14). The fixed-capital investment is usually regarded as the capital needed to provide all the depreciable facihties. It is sometimes divided into two classes by defining battery limits and auxiliaiy facilities for the project. The boundary for batteiy limits includes all manufacturing equipment but excludes administrative offices, storage areas, utihties, and other essential and nonessential auxihaiy facilities. 

Multiple-factor methods include the cost contributions for each given activity, which can be added together to give an overall factor. This factor can be used to multiply the total cost of dehvered equipment X (Ce(j)del lo produce an estimate of the total fixed-capital investment either for grass-roots or for battery-hmit plants. The costs may be divided into four groups ... 

These methods have become increasingly popular. While they are similar to the preceding methods, labor ana materials costs are considered separately. Hence it is possible to allow for variations in efficiency and labor costs in different locahties or countries. H. C. Bauman Fundamentals of Cost Engineering in the Chemical Indus-tiy. Van Nostrand Reinhold, New York, 1964, p. 295) divides most of the components of Table 9-51 into material and labor components, quoting the data as ranges and medians of the percentage of the total fixed-capital investment. In Table 9-54, Bauman s data have been converted to factors of the delivered-equipment cost for a grass-roots installation. 

TABLE 9-51 Factors to Convert Delivered-Equipment Costs into Fixed-Capital Investment... 

Gas-hquid contac ting systems are utilized for transferring mass, heat, and momentum between the phases, subject to constraints of physical and chemical equihbrium. Process equipment for such systems is designed to achieve the appropriate transfer operations with a minimum expenditure of energy and capital investment. 

While successbil and economical system designs can be devised by experienced process engineers, the competent technical aid available from equipment supphers has led to a growing trend toward the purchase of complete systems, even on small jobs, rather than iu-plaut assembly from components on the basis of in-house designs. An idea of the change in capital investment for typical pneumatic-conveyor systems as a function of increasing transfer rates is given in Table 21-12. 

Mobile equipment is often preferred to fixed types. Front-end loaders, scrapers, and bulldozers are used with increasing frequency, especially on projects of short duration or when capital investment must be limited. Front-end loaders are especially advantageous because of their ability to carry material as well as to plow or bulldoze it. 

GFRP offers savings of up to 30% in total car weight, at some increase in unit cost and considerable capital investment in new equipment. Recycling problems still have to be overcome. 

Furthermore, although the U.S. EPA argues that the cost of compliance for all environmental regulations is small in comparison to overall industry expenditures, there are many hidden costs that oftentimes are not considered, and go beyond the capital investment for a piece of equipment. These so-called other costs are not necessarily incremental, depending upon the size of a company and the magnitude of its environmental management issues. They include, but are not limited to ... 

Ranking equipment and teehnology options for an intended applieation then beeomes a matter of seleeting those projeet options with the shortest paybaek period. So, for example, if we compare a baghouse versus an electrostatic filter for a dust control application, an overall payback period for each option can be determined based on the capital investment for each piece of equipment, operating, maintenance, power costs, and other factors. 

The cost of equipment determines the capital investment for a process operation. However, there is no direct relationship to profits. That is, more expensive equipment may mean better quality, more durability and, hence, longer service and maintenance factors. These characteristics can produce higher operating efficiencies, fewer consumption coefficients and operational expenses and, thus, fewer net production costs. The net cost of production characterizes the perfection rate of the total technological process and reflects the influences of design indices. Therefore, it is possible to compare different pieces of equipment when they are used in the manufacture of these same products. 

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