Economics present worth

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. 

In this formula, P is present worth or present value, F is future value, i is the interest or discount rate, and n is the number of periods. Economically, there is an additional factor at work in present value, and that factor is pure time preference, or impatience. However, this issue is generally ignored in business accounting, because the firm has no such emotions, and opportunities can be measured in terms of financial return. 

Verink s equation for determining the present worth (PW) for different economic design situations using straight-line depreciation were written as ... 

Corrosion economics and corrosion management forms the theme of the fifth chapter. Discounted cash flow calculations, depreciation, the declining balance method, double declining method, modified accelerated cost recovery system and present worth calculation procedures are given, together with examples. In the second part, corrosion management, including the people factor in corrosion failure is briefly presented. Some of the expert systems presently available in the literature are briefly discussed. 

The same methods that were explained and applied earlier in this chapter are applicable for replacement analyses. Net-present-worth and discounted-cash-flow methods give the soundest results for maximizing the overall future worth of a concern. However, for the purpose of explaining the basic principles of replacement economic analyses, the simple rate-of-retum-on-investment method of analysis is just as effective as those methods involving the time value of money. Thus, to permit the use of direct illustrations which will not detract from... 

Related Calculations. The difference between the two internal rates of returns is so small that, on a purely economic basis, the projects are virtually indistinguishable. By contrast, the difference in the projects net present worths (see Example 18.5) is large enough to make the textile fibers expansion the clear choice for funding. As with the net present worth method, the internal rate of return procedure cannot be used unless the lifetimes of the competing projects are equal. 

Select the most appropriate evaluation method. Note that the control devices have different economic lives. Thus, neither the net present worth nor the internal rate of return method can be used, as both require that all options have the same economic life. However, the equivalent uniform annual revenue method can be used, as this restriction does not apply to it. 

A commonly used profitability index in conjunction with the NPV method shows how closely a project has met the criterion of economic performance. This index is known as the present value ratio (PVR) or present worth ratio (PWR), and is defined as... 

For process optimization with respect to several economic criteria such as net present worth, payback period and operating cost, the classical Williams and Otto (WO) process and an industrial low-density polyethylene (LDPE) plant are considered. Results show that either single optimal solution or Pareto-optimal solutions are possible for process design problems depending on the objectives and model equations. Subsequently, industrial ecosystems are studied for optimization with respect to both economic and environmental objectives. Economic objective is important as companies are inherently profit-driven, and there is often a tradeoff between profit and environmental impact. Pareto-optimal fronts were successfully obtained for the 6-plant industrial ecosystem optimized for multiple objectives by NSGA-ll-aJG. The study and results reported in this chapter show the need and potential for optimization of processes for multiple economic and environmental objectives. 

Multi-objective optimization (MOO) has attracted considerable attention from researchers in chemical engineering, particularly in the past decade. Reported MOO studies have mainly used criteria such as selectivity, yield, productivity and/or energy consumed see Chapter 2 for the chemical engineering applications studied since 2000 and the objectives used in them. However, profit, an important criterion in any commercial operation, was not used in many of these studies. Apart from the simple profit, several economic criteria such as payback period (PBP), net present worth or value (NPW or NPV) and internal rate of return (IRR) are popular for evaluating projects in industrial practice. Edgar et al. (2001) compared the pros and cons of these three profitability criteria. Studies by Huskies (1997) and Pintaric and Kravanja (2006), show that optimal solutions of chemical processes are dependent on the economic objective selected. This indicates the conflicting nature of some, if not all, economic objectives, which means MOO is probably required even if one is interested in only the profitability criteria. 

Each company and each economist has one or more ways of determining profitability by economic analysis. It is not the purpose of this book to elaborate on these. Excellent books on chemical engineering economy are listed in the Additional Selected References. However, three of the more popular methods will be discussed (1) return on investment, (2) pay-out time, (3) project present worth. To proceed with the economic analysis, net or new earnings must first be determined from selling price less costs. 

If both present worths had been negative, we would have proven, a fortiori, that the proposed should be rejected on economic grounds. Conversely, if both PW values had been positive, em accept decision would have been indicated. 

Here we will discuss three different methods that you can use to choose the best economical alternative from many options. The three methods are commonly referred to as (1) present worth (PW) or present cost analysis, (2) annual worth (AW) or annual cost analysis, and (3) future worth (PW) or future cost analysis. When these methods are applied to a problem, they all lead to the same conclusion. So in practice, you need only apply one of these methods to evaluate options however, in order to show you the details of these procedures, we will apply all of these methods to the preceding problem. 

Refer to Table 13.2, which is an accounting of all costs for a hypothetical project. Note that the consulting cost ultimately paid by the owner is a small part (2.5 percent) of the total present worth cost that will be incurred by the owner in obtaining and using the structure, facility, system, product, or process. Full appreciation of Table 13.2 requires understanding present worth and now to estimate it. Perhaps you have already learned that in an engineering economics or decision economics course, or... 

Total initial capital cost to client, owner, or customer Operation and maintenance cost (present worth) incurred by client, owner, or customer over the economic life of the structure, facility, system, product, or process (usually not known when consultant is being selected)... 

The generalized economic analysis expression in Eq. (11.1) is particularly adapted to corrosion engineering problems. Given the numerous uncertainties associated with most corrosion problems this equation can provide fairly good estimates of prevention and control alternatives. This equation takes into account the influence of taxes, straight-line depreciation, operating expenses, and salvage value in the calculation of present worth and annual cost [11]. 

NACE International, in special report on economics of corrosion, advocates the use of the discounted cash flow method, which provides ready calculation of net present worth. Factors that need to be considered in calculating net present worth include... 

So far we have explained how to estimate capital and operating costs. In Example 3.3, we formulated an objective function for economic evaluation and discovered that although the revenues and operating costs occur in the future, most capital costs are incurred at the beginning of a project. How can these two classes of costs be evaluated fairly The economic analysis of projects that incur income and expense over time should include the concept of the time value of money. This concept means that a unit of money (dollar, yen, euro, etc.) on hand now is worth more than the same unit of money in the future. Why Because 1000 invested today can earn additional dollars in other words, the value of 1000 received in the future will be less than the present value of 1000. 

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