Fixed-capital-cost estimation

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. 

Rapid Manufacturing-Cost Estimates Fixed manufacturing costs are a func tion of the fixed-capital investment and are independent of the production rate of the plant. Property taxes or rates depend on location. They may be taken as 2 percent of the fixed-capital cost of the plant in the absence of specific data. The cost of insurance depends on both location and the hazardous nature of the materials handled. This cost is normally of the order of 1 percent of the fixed-capital cost of the plant. 

The factorial method therefore yields a capital cost estimate of Capital Cost = Fixed Costs + Working Capital = AS1 1 million + As2.45 million = AS1 3.5 million... 

Table 3 and is the basis for the estimated fixed-capital cost tabulation given in Table 4. The probable error in this method of estimating the fixed-capital investment is as much as + 30 percent.

The cost estimate developed for the process based on the integrated OTM-HTM reactor was used as a baseline cost, and the cost estimate for the process with the sequential reactors was developed by extrapolation. The hydrogen plant capacity was fixed at 1,000 scfh for the cost estimation. The capital costs for 2,000 and 5,000 scfh were estimated by using appropriate scale-up factors. For each capacity, costs were estimated for 10, 100, and 1,000 plants built/year. After reviewing the results, it was clear that the plants with capacities of 1,000 and... 

A product is to be produced in a batch process. The estimated fixed capital investment is 5 million. The estimated raw materials cost is 100,000/batch, the estimated utility costs are 60,000/batch, and the estimated waste treatment cost is 23,000/batch. The revenue is predicted to be 220,000/batch. An initial scheduling scenario suggests that it will be possible to produce 22 batches/yr. The internal hurdle rate is 15% p.a. before taxes over 10 years. 

The capital cost estimates are generated by the Engineering function, often based on 50/50 estimates (equal probability of cost overrun and underrun). It is recommended that the operating expenditure is estimated based on the specific activities estimated during the field lifetime (e.g. number of workovers, number of replacement items, cost of forecast manpower requirements). In the absence of this detail it is common, though often inaccurate, to assume that the opex will be composed of two elements fixed opex and variable opex. 

Capital Investment Cost. The capital investment involved in a proposed project is important because it represents the money that must be raised to get the project started, is used in profitabiUty forecasts, and is reflected in the estimated manufacturing cost of a product. The capital investment is classified herein as fixed capital, working capital, and land cost. Sample capital investment estimate forms provide for separate materials (M) and labor (L) categories, or just combined M L figures. 

Annual plant maintenance and repair costs average about 6% of the fixed capital iavestment, but should be calculated directly from person—hour per shift data or estimates. The annual cost for suppHes can be taken as 15% of the total maintenance and repair cost. 

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 first stage toward producing an accurate estimate is to use a standard cost code for all construction projects. Table 9-45 shows a suitable numerical cost code, and Table 9-46 shows a typical alphabetical-numerical code. The cost-code system can be used throughout the estimating and construction stages for the collection of cost data by manual or computer methods. There are numerous types of fixed-capital-cost estimates, but in 1958 the American Association of Cost Engineers defined five types as follows ... 

TABLE 9-44 Checklist of Items for Fixed-Capital-Cost Estimates... 

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 ... 

Equipment Costs The cost of dehvered equipment forms the basis of most methods of estimating the fixed-capital cost. The equipment required can usually be divided into (1) processing equipment, (2) equipment for handling and storage of raw materials, and (3) finished products handling and storage equipment. 

For control purposes it is advisable to estimate startup cost and time beforehand and then try to stay within the estimates. Tne general parameters which can be used to estimate startup cost Csu, which are usually between 2 and 20 percent of the batteiy-limit fixed-capital cost, are as follows ... 

Complete Plant Costs It is difficult to compare costs of domestic and overseas plants owing to the wide variation in types of plants and sizes and the rapid changes in technology. Useful data are scarce, and the following comparisons must be used with caution and then only for order-of-magnitude estimates of fixed-capital costs. 

Table 9-63 uses the data of Fig. 9-44 to compare the relative fixed-capital costs for plant constnic tion in other countries with those for the United States. The relative cost ratios were developed from data similar to those in Table 9-62. Labor ratios were corrected for the different local rates and hours per working week, job duration, and degree of mechanization available in other countries. Some of these factors are difficult to estimate, and the final total ratios give a reasonable order-of-magnitiide value for relative construction costs for equivalent plants in the countries indicated.

Estimating start-up costs can be as simple as choosing 10% of the fixed capital cost, or as complicated as estimating each step of the start-up. If time permits, a detailed... 

The factorial method of cost estimation is often attributed to Lang (1948). The fixed capital cost of the project is given as a function of the total purchase equipment cost by the equation ... 

Table 6.1. Typical factors for estimation of project fixed capital cost...

This item will include the cost of maintenance labour, which can be as high as the operating labour cost, and the materials (including equipment spares) needed for the maintenance of the plant. The annual maintenance costs for chemical plants are high, typically 5 to 15 per cent of the installed capital costs. They should be estimated from a knowledge of the maintenance costs on similar plant. As a first estimate the annual maintenance cost can be taken as 10 per cent of the fixed capital cost the cost can be considered to be divided evenly between labour and materials. 

Fixed costs 5. Maintenance 6. Operating labour 7. Laboratory costs 8. Supervision 9. Plant overheads 10. Capital charges 11. Insurance 12. Local taxes 13. Royalties 5-10 per cent of fixed capital from manning estimates 20- 23 per cent of 6 20 per cent of item (6) 50 per cent of item (6) 10 per cent of the fixed capital 1 per cent of the fixed capital 2 per cent of the fixed capital 1 per cent of the fixed capital... 

Estimation of fixed capital cost, reference Table 6.1, fluids processing plant ... 

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