Capital investments factors

Hant Indirect Expenses These expenses cover a wide range of items such as property taxes, personal and property liability insurance premiums, fire protection, plant safety and security, maintenance of plant roads, yards and docks, plant personnel staff, and cafeteria expenses (if one is available). A quick estimate of these ejq)enses based upon company records is on the order of 2 to 4 percent of the fixed capitm investment. Hackney presented a method for estimating these ej nses based upon a capital investment factor, and a labor factor, but the result is high. 

Commodity Chemical(s) Production Rate(s) (Millions of Pounds/Year) Capital Investment Factor [C in Eq. (16.4) for 1995]... 

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. 

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 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. 

Most large electrochemical processing faciHties are located where raw materials, including electric power, are readily available at reasonable costs. Other factors influencing the location of electrochemical plants are proximity to markets, estabHshed transportation faciHties, availabiHty of water, and a source of labor. Large electrochemical plants are capital intensive, requiring large capital investment cost per employee. 

Consideration of the cash-flow stages in Fig. 9-10 shows the factors that can affecd the (EMIP) and (IRP). if the reqiiired capital investment is increased, it is necessary to increase the rate of income after startup for the (EMIP) to remain the same. In order to have the (EMIP) small, it is necessary to keep the research and development, design, and construction stages short. 

Example 3 Sensitivity Analysis The following data describe a project. Revenue from annual sales and total annual expense over a 10-year period are given in the first three columns of Table 9-5. The fixed-capital investment Cfc is 1 million. Plant items have a zero salvage value. Working capital C c is 90,000, and the cost of land Ci is 10,000. There are no tax allowances other than depreciation i.e., is zero. The fractional tax rate t is 0.50. For this project, the net present value for a 10 percent discount factor and straight-line depreciation was shown to be 276,210 and the discoiinted-cash-flow rate of return to be 16.4 percent per year. 

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 ... 

The estimated values for the various contributions are given in Table 9-53, resulting in an estimate of 4,280,000 for the total fixed-capital investment, including a contingency factor. 

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... 

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. 

Design strategies which result in an inherently safer design may also tend to improve process economics. For example, minimizing the size of equipment or simplifying a process by eliminating equipment will usually reduce capital investment and reduce operating costs. However, overall process economics are very complex and are impacted by many factors, and it may not always be true that an inherently safer process is also economically more attractive. 

The ratio of the fixed capital investment to the purchased equipment cost (Lang factor) is taken as 4.83. 

Fixed capital investments are characterized by the fact that they have to be replaced after a number of years commonly referred to as service life or useful life period. This replacement is not necessarily due to wear and tear of equipment. Other factors include technological advances that may render the equipment obsolete. Furthermore, over the usefiil life of the equipment, the plant should plan to recover the capital cost expenditure. In this regard, the notion of depreciation is useful. Depreciation or amortization is an annual allowance which is set aside to account for the wear, tear, and obsolescence of a process such that by the end of the useful life of the process, enough fund is accumulated to replace the process. The simplest method for determining depreciation is referred to as the straight line method in which... 

Determination of the actual cost of a hydrogenation process is difficult. Among the factors entering into the determination are catalyst cost, catalyst life, cost of materials, capital investment, actual yield, space-time yield, and purification costs, Considerable data are needed to make an accurate evaluation. 

The CCE spreads the investment over the lifetime of the measure into equal annual payments with the familiar capital recovery factor. The annual payment is then divided by the annual energy savings to yield a cost of saving a unit of energy. It is calculated using the following formula ... 

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. 

The main consideration in the selection of a compressor plant is the production of an adequate supply of compressed air at the lowest cost consistent with reliable service. The installation of a compressed air system, as with all forms of power transmission, calls for capital investment with consequent operating and maintenance costs. The information on which the selection of plant is based should be as accurate as possible. Important factors to be considered are the following. 

The chemical and petrochemical industries are highly capital intensive and this has two important implications for the plant designer. Before the expenditure for any plant is approved, a discounted cash flow (DCF) return on capital invested is projected (Section 9.1). The capital cost of the plant is a key factor in deciding whether the DCF return is above or below the cut-off value used by a company to judge the viability of projects. Thus, there is always strong pressure on the materials engineer not to overspecify the materials of construction. 

There is an important feedback factor which cannot be properly evaluated at this time. It concerns future municipal investment in a specific waste control system. This could result in legislation controlling the input of important potential waste materials to the municipality. For example large capital investment in a heat/energy recovery system based on incineration might induce legislative restrictions on low calorific materials like metals and glass. 

An analysis of equipment costs and capital investment for chemical plants (Wilson, 1947 Chilton, 1950 Vilbrandt and Dryden, 1959 Guthrie, 1970) showed that the six-tenths factor can be applied for a rough evaluation of the influence of equipment size on its cost. The six-tenths rule can be described as a power law expression ... 

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