Capital recovery costs

If a process is to be profitable, the total annual cost must be offset by the revenue (R) the process generates. Moreover, if the revenue exceeds the TAC, income taxes will be owed. Finally, if income taxes are a consideration, so will be the depreciation of the process equipment. (Depreciation, an income tax book entry, should not be confused with the capital recovery cost see later discussion on the EUAR method.) Space does not permit a thorough discussion of either income taxes or depreciation, as the rules governing the calculation of both are quite complex. For our purposes, the following equation, which encompasses all of these variables, will suffice ... 

Calculate the capital recovery factor. In this method, each of the undiscounted net cash flows (NCFs) for years 1 to 20 is algebraically added to the capital recovery cost (CRC) to obtain the equivalent uniform annual revenue (EUAR). The CRC is the product of the total capital investment,... 

Calculate the capital recovery cost for the inorganic chemicals plant... 

Even so, the EUAR method is best suited to those situations where (as in this case) the undiscounted net cash flows are constant. However, when they are not constant, each NCF must be discounted back to year zero, summed, and annualized by multiplying it by the CRF. Finally, this annualized NCF must be added to the capital recovery cost. By the time the analyst has done all of this, he or she could just as well have calculated the net present worths or internal rates of return of the competing projects. 

Determine the EUAR for each option, assuming a 6% hurdle rate. Following the procedure of Example 18.7, calculate for each option the undiscounted net cash flow, the capital recovery factor, the capital recovery cost, and the EUAR. The results are as follows ... 

Notes on figures purification category includes reformate compressor costs for low-pressure reformers with PSA and membrane purification. Cost categories include energy, maintenance, and capital recovery costs. "Other" costs include labor, rent, utilities, profit, and capital recovery for site preparation and central controls and safety. 

Capital recovery costs The equivalent expense to recover the cost of an investment, like that for fixed assets and working capital. The calculation normally uses asset life, salvage value, and the cost of capital to make the conversion. Also called equivalent uniform annual cash flow. ... 

Nominal Average Production Costs in Cents/kWh for Plants Operating in 2013 in the United States. Does Not Include Capital Recovery Costs on Investment... 

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 NPV represents the present-value net return, because provision has been made for capital recovery and the cost of capital. In other words, the NPV is a discounted net return or profit, analogous to the net return of the example introduced earher. 

This is then converted to annualized capital costs (ACC) with the use of the capital recovery factor (CRF), which can be calculated from the following equation ... 

The annualized capital cost (ACC) is the product of the CRF and TCC and represents the total instaUed equipment cost distributed over the lifetime of the project. The ACC reflects the cost associated with the initial capital outlay over the depreciable life of the system. Although investment and operating costs can be accounted for in other ways such as present-worth analysis, the capital recovery method is preferred because of its simplicity and versatUity. This is especiaUy true when comparing somewhat similar systems having different depreciable lives. In such decisions, there are usuaUy other considerations besides economic, but if all other factors are equal, the alternative with the lowest total annualized cost should be the most viable. 

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 ... 

The estimated treatment costs per ton, inclnding capital recovery, for the batch steam distillation are 299 to 393/ton and 266 to 350/ton at a 500-ton site and a 2500-ton site, respectively. 

Using the accelerated capital recovery system (ACRS) still showed negative cash flows for each project. The reason for these negative cash flows is that tire pyrolysis is only economic with unique situational variables. There are a number of questions about product quality, product price, and feed stock cost which tend to lend a vagueness to the economic analysis..."... 

Cost Estimation. The capital costing equations used in the cogeneration problem have been designed to yield approximate capital and maintenance expenditures and to reflect the consequence of changing the system s variables on these costs. The form of these equations expresses equipment costs in terms of stream and performance variables. In all cases a capital recovery factor is used to account for the cost of capital (i = 15%) and estimated useful life (n = 40 years). 

Because of the considerable uncertainties in all the assumptions made, this projected hydrogen cost should not be rigorously compared with the cost projections we have made for the other processes discussed in this paper. Moreover, we have not reworked Knoche and Funk s economics to conform with the guidelines of Table 1. (The assumptions they made were an 80% stream factor, utility financing, 12 % capital recovery factor, and mid-1976 dollars.)... 

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