Depreciable capital cost

Depreciation (1 - fs) x (Depreciable Capital Cost) / (Plant Life) ... 

There are several depreciation methods, which are discussed in many economic tercts. Since we want to develop a rapid method of estimating the production cost, we will use the simple linear depreciation method. For this method, divide the difference of the depreciable capital cost and its salvage value by the Ufe of the plant, as shown in Table 2.1. An entire plant or individual equipment has three lives an economic life, a physical life, and a tax life. The economic hfe occurs when a plant becomes obsolete, a physical hfe when a plant becomes too costly to maintain, and a tax life, which is fixed by the government. The plant life is usually ten to twenty years. The depreciable capital cost includes all the costs incurred in building a plant up to the point where the plant is ready to produce, except land and site-development costs. Care must be taken not to include costs that are not depreciable. 

To calculate several of the cost items listed in Table 2.1, requires the depreciable and fixed capital costs. The depreciable capital cost is the capital required for equipment and its installation or modification in the process, and all the facilities required to operate the process. There is some variation in the definition of fixed capital cost. References [1-5], define the fixed capital as consisting of the depreciable capital cost, land cost, and site or land development cost. Woods [10], however, omits land cost and land development cost so that that the fixed capital cost equals the depreciable capital cost. We will adopt the first definition here. For now, assume that we know the depreciable capital cost. We will develop a procedure for its evaluation later. In Example 2.1 estimate the production cost using Table 2.1. 

X depreciable capital cost 0.021 X depreciable capital Cost 79.8 c/kg... 

According to Table 2.1, the fixed capital cost equals the sum of the depreciable capital cost, land cost, and land development cost. Land cost is 0.015 times the depreciable capital cost and land development is 0.0211 times the depreciable capital cost for a fluid processing plant. Thus,... 

Figure 2.4 divides the depreciable capital costs into several categories. The two major categories are direct and indirect costs. Peters and Timmerhaus [4] and Humphreys [5] list these costs. Reference [3] gives a more detailed breakdown. As Figure 2.4 shows,... 

In the factor methods for cost estimating, first calculate the purchased or delivered cost of all major equipment, for example, distillation columns, reactors, pumps, heat exchangers, etc. Then multiply the total equipment cost by factors to estimate the various other components of the depreciable capital cost given in Equation 2.2, such as piping and electrical wiring. Thus, we arrive at the cost of installing all the equipment and supplying all the services needed to produce an operational process. 

It helps to visualize the process of constmcting a plant to understand the calculation of depreciable capital cost. First, a purchasing agent orders equipment from various manufacturers from all over the world. The manufacturers then deliver the equipment to the plant site. Shipping charges, insurance, and taxes add to the cost of equipment, resulting in the delivered equipment costs. 

Figure 2.4 Components of depreciable capital cost for a chemical plant.

Because the factor methods for calculating the depreciable capital cost are rapid methods and not based on a detailed design, many small items of equipment are knowingly omitted. Also, there are uncertainties in design and economic procedures, and bad weather, strikes, and other unforeseen events may cause delays. To correct for uncertainties and unforeseen events requires using a contingency factor or safety factor. 

Table 2.6 Cost Factors for Estimating Depreciable Capital Cost-Average Factor Method (Adapted from Reference 4.) ...

The direct-cost factor for equipment, foe, contained in Table 2.8, does not include buildings and auxiliary facilities. It includes the labor and materials needed to install equipment. The buildings and auxiliary costs will be accoimted for after we-calculate the depreciable capital cost for equipment. 

To calculate the depreciable capital cost we need to calculate the cost of buildings and auxiliary facilities. Table 2.6 contains factors for calculating these costs. Ulrich [31] pointed out that these costs are not affected by process-equipment operating temperature and pressure, materials of constraction, or equipment design. Thus, we calculate the base installed cost, which is the installed cost of carbon-steel equipment at ordinary operating conditions and equipment design. To obtain the cost of auxiliary facilities and buildings, multiply Csbi by fAB- Now, we can now complete the calculation of the depreciable capital cost as outlined in Table 2.14. 

Table 2.14 Calculation Procedure for Depreciable Capital Cost—... 

Calculate the depreciable capital cost from Equation 2.13.10. 

Table 2.15 Summary of Equations for Depreciable Capital Cost -Individual Factor Method (Based on Purchased Equipment Cost (FOB))...

The total capital cost consists of the depreciable capital cost, land cost, land or site development cost, startup cost, and working capital. In theory, land cost is completely recoverable when a plant shuts down, and Uherefore is not depreciable. Land cost varies from 0.01 to 0.02 times the depreciable capital cost. Use an average value of 0.015. 

Land development cost, which is not depreciable, consists of such items as site clearing, constmction of roads, walkways, raihoads, fences, parking lots, wharves, piers, recreational areas, and landscaping. Presumably, these items improve the value of the land, and their costs, to a certain extent, are recoverable. Table 2.17 lists land development cost for three process types as a fraction of the depreciable capital cost. 

Plant at an Existing Site Fraction of Depreciable Capital Cost, ft... 

The process design for the production of allyl chloride has been completed. Table 2.4.1 lists the specifications for the major pieces-of-equipment. Estimate the depreciable capital cost and the total capital cost as of mid-1998. The process is a plant addition at an existing site, i.e., buildings and auxiliary facilities are available. The cost of the eductor-mixer as of mid-1998 is 1,000. 

We see that the cost of the installation at ordinary process conditions, Cbi, is less than the cost at actual conditions, Cai. If this process were a grass-roots plant, we would have to add the additional cost of buildings and auxiliary facilities. In this case, the process is a plant addition at an existing site where the buildings and auxiliary facilities are available. Therefore, fAB = 0, as given in Equation 8.15.8. Thus, the depreciable capital cost is equal to 468,800. 

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