Capital investments 0.6” factor estimates

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. 

The cost for land and the accompanying surveys and fees depends on the location of the property and may vary by a cost factor per acre as high as thirty to fifty between a rural district and a highly industrialized area. As a rough average, land costs for industrial plants amount to 4 to 8 percent of the purchased-equipment cost or 1 to 2 percent of the total capital investment. Because the value of land usually does not decrease with time, this cost should not be included in the fixed-capital investment when estimating certain annual operating costs, such as depreciation. 

Factors that influence a capital investment cost estimate over time are inflation, workforce productivity, and changing construction standards. The combined effects of these factors are reflected in widely published indices. The main indices in use are ... 

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. 

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. 

Capital costs can be estimated by applying installation factors to the purchase costs of individual items of equipment. However, there is considerable uncertainty associated with cost estimates obtained in this way, as equipment costs are typically only 20 to 40% of the total installed costs, with the remainder based on factors. Utility investment, off-site investment and working capital are also needed to complete the capital investment. The capital cost can be annualized by considering it as a loan over a fixed period at a fixed rate of interest. 

For economic evaluation purposes, another definition of working capital is used. It is the funds, in addition to the fixed capital, that a company must contribute to a project. It must be adequate to get the plant in operation and to meet subsequent obligations when they come due. Working capital is not a one-time investment that is known at the project inception, but varies with the sales level and other factors. The relationship of working capital to other project elements may be viewed in the cash flow model (see Fig. 9-9). Estimation of an adequate amount of working capital is found in the section Capital Investment. ... 

Assuming a 480-ton/day treatment rate, the estimated life-cycle cost for a full-scale treatment is approximately 160 per ton of dry soil processed (D13753L, p. 2). This estimate includes fixed capital investment and operating costs based on a 70% utilization factor for plant operations over a period of 17 years. Operating cost estimates (included iu the life-cycle cost estimate) include an inflation rate of 5% per year (D13753L, pp. 32-34). 

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. 

Except for shell and tube exchangers, purchased costs were estimated by means of charts from the Chauvel Method (Chauvel, 2000), then multiplied by correcting factors (materials for example). Other charts have then been used for purchased costs, the second step requiring correcting factors being the same as previously. These different methods show finally various results with a decrease of about 24% of the total capital investment (Peters, 2003 Ulrich, 2004). 

The overall purification yield of recombinant enzyme is affected by the scale-up and may vary from plant to plant. The profitability at lower yields and at a constant selling price was also determined. A 10% reduction in yield resulted in a 12.9% decrease in the ROI. Conversely, the effect of increasing the plant capacity between 4545 (base case) and 45,450 kg of corn per batch on rGUS production, capital investment, UPC and ROI was estimated. A five-fold increase in capacity resulted in a reduction of 30% in the UPC, and an increase in the ROI from 52 to 91%. Further increase in the capacity did not have a significant effect on the UPC and ROI. With a five-fold increase in the capacity the total capital investment increased by a factor of 3.3, labor, administrative, and overhead expenses doubled, and the rest of the operating costs increased proportionally with the capacity. 

The total capital investments costs was estimated on the basis of the equipment costs plus a specific installation factor and is shown in Table 3. An additional of 20% of the total installed equipment costs was included for engineering and contingency costs. The main part of these costs are due to the extraction column, EC, (this includes the price of steel to be used to make the column and the packing expenses) and the main gas compressor, C. 

Of the many factors which contribute to poor estimates of capital investments, the most significant one is usually traceable to sizable omissions of equipment, services, or auxiliary facilities rather than to gross errors in costing. A check list of items covering a new facility is an invaluable aid in making a complete estimation of the fixed-capital investment. Table 1 gives a typical list of these items. 

A contingency factor is usually included in an estimate of capital investment to compensate for unpredictable events, such as storms, floods, strikes, price... 

METHOD D LANG FACTORS FOR APPROXIMATION OF CAPITAL INVESTMENT. This technique, proposed originally by Langf and used quite frequently to obtain order-of-magnitude cost estimates, recognizes that the cost of a... 

Ratio factors for estimating capital-investment items based on delivered-equipment cost... 

Lang multiplication factors for estimation of fixed-capital investment or total capital investment... 

METHOD E POWER FACTOR APPLIED TO PLANT-CAPACITY RATIO. This method for study or order-of-magnitude estimates relates the fixed-capital investment of a new process plant to the fixed-capital investment of similar previously constructed plants by an exponential power ratio. That is, for certain similar process plant configurations, the fixed-capital investment of the new facility is equal to the fixed-capital investment of the constructed facility C multiplied by the ratio R, defined as the capacity of the new facility divided by the capacity of the old, raised to a power x. This power has been found to average between 0.6 and 0.7 for many process facilities. Table 19 gives the capacity power factor (x) for various kinds of processing plants. 

Example S Estimation of fixed-capital investment with power factor applied to plant-capadty ratio. If the process plant, described in Example 1, was erected in the Dallas area for a fixed-capital investment of 436,000 in 1975, determine what the estimated fixed-capital investment would have been in 1980 for a similar process plant located near Los Angeles with twice the process capacity but with an equal number of process units Use the power-factor method to evaluate the new fixed-capital investment and assume the factors given in Table 20 apply. 

Results obtained using this procedure have shown high correlation with fixed-capital investment estimates that have been obtained with more detailed techniques. Properly used, these factoring methods can yield quick fixed-capital investment requirements with accuracies sufficient for most economic-evaluation purposes. 

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