Depreciable capital cost factor methods

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. 

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.) ...

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

Table 2.16 Calculation Procedure for Depreciable Capital Cost— Individual Factor Method ... 

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. 

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... 

Peters and Timmerhaus (Ref. CE9) was the most used book in this category. It explains the ratio method and factored cost method of capital cost estimation. It also contains nomographs and correlations so that many plant equipment items can be costed. There are tables of typical values for costs such as insurance, depreciation and engineering. 

Depreciation follows the depreciation method Modified Accelerated Cost Recovery System (MACl ). Under IRS regulations, most utility type investments use either a 15- or 20-year depreciation schedule. Certain investments, such as renewables, are allowed to use a 5-year depreciation schedule. The capital recovery factor (CRF) is calculated using... 

The products of each system were costed using two different techniques the equality method and the by-product work method (1, 2 ). Every case analyzed accounts for maintenance as well as fuel expenses but excludes other operating costs. Capital investment is amortized at an after-tax discount rate of 8.5%. The effects of income taxes, ad valorem taxes, and depreciation (see (3) for the formulation of the annualization factor accounting for capital, taxes and depreciation) are included, while the effects of inflation were neglected. 

---