Estimation of Fixed Capital Investment

The exponential method may be used to obtain a rapid capital cost for a plant based upon existing company data or from published sources such as those of D. S. Remer and L. H. Chai, Chemical Engineering, 

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Example 1 Estimation of fixed-capital investment using ranges of process-plant component costs. Make a study estimate of the fixed-capital investment for a process plant if the purchased-equipment cost is 100,000. Use the ranges of process-plant component cost outlined in Table 4 for a process plant handling both solids and fluids with a high degree of automatic controls and essentially outdoor operation. 

Example 3 Estimation of fixed-capital investment by percentage of delivered-equipment cost. Prepare a study estimate of the tied-capital investment for the process plant described in Example 1 if the delivered-equipment cost is 100,000. 

Lang multiplication factors for estimation of fixed-capital investment or total capital investment... 

In those situations where estimates of fixed-capital investment are desired for a similar plant at a new location and with a different capacity, but with multiples of the original process units, Eq. (11) often gives results with somewhat better than study-estimate accuracy. 

Example S Estimation of fixed-capital investment with power factor applied to plant-capadty ratio. If the process plant, described in Example 1, was erected in the Dallas area for a fixed-capital investment of 436,000 in 1975, determine what the estimated fixed-capital investment would have been in 1980 for a similar process plant located near Los Angeles with twice the process capacity but with an equal number of process units Use the power-factor method to evaluate the new fixed-capital investment and assume the factors given in Table 20 apply. 

In Section 2. the information needed to assess the economic feasibility of a process is covered. This includes the estimation of fixed capital investment and manufacturing costs, the concepts of the time value of money and financial calculations, and finally the combination of these costs into profitability measures for the process. 

A certain amount of money must be invested if any product is to be produced. This is referred to as capital. The capital is made up of the fixed capital needed to construct the plant and the working capital needed to operate it. The fixed capital is the cost of building and equipping the plant and all its peripheral buildings and operations. Chapter 9 was devoted to methods for estimating the fixed capital investment. 

Assume delivery charges are 5 percent of the purchased price. Estimate the fixed capital investment 2 years into the future, using the Lang, Hand, and Wroth methods. The inflation rates are 3.5 percent for the first year and 4.0 percent for the second. 

Assuming a 480-ton/day treatment rate, the estimated life-cycle cost for a full-scale treatment is approximately 160 per ton of dry soil processed (D13753L, p. 2). This estimate includes fixed capital investment and operating costs based on a 70% utilization factor for plant operations over a period of 17 years. Operating cost estimates (included iu the life-cycle cost estimate) include an inflation rate of 5% per year (D13753L, pp. 32-34). 

The total working capital must be added to this estimate of fixed capital to obtain the full composite figure for the capital cost. The working capital represents an investment in storage of feed ammonia for one week, product acid for one week, stores (e.g. catalyst) and others. Table E.3 in Appendix E summarizes these incurred costs. 

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.

Another expense which is included under indirect plant cost is the item of construction or field expense and includes temporary construction and operation, construction tools and rentals, home office personnel located at the construction site, construction payroll, travel and living, taxes and insurance, and other construction overhead. This expense item is occasionally included under equipment installation, or more often under engineering, supervision, and construction. If construction or field expenses are to be estimated separately, then Table 15 will be useful in establishing the variation in percent of fixed-capital investment for this indirect cost. For ordinary chemical-process... 

The working capital is estimated as 7 weeks cash cost of production minus 2 weeks feedstock costs plus 1% of the fixed capital investment, as described in Section 6.2.2. Because the cash cost of production includes the interest payable on the working capital, this sets up a circular reference in the spreadsheet. The spreadsheet options must be adjusted to ensure that the calculation iterates to convergence. The converged result is 59.5 MM. Note that the value calculated is about f 0% greater than it would have been had we estimated the working capital as f5% of fixed capital investment. 

Capital investment is the total amount of money needed to supply the plant and manufacturing facilities plus the amount of money required as working capital for operation of the fecilities. To estimate a fixed-capital investment it is necessary to consider the following costs ... 

As there is a direct relationship between fixed and working capital costs, method d can be expanded to get a quick estimate of total capital investment within an error of 20 to 40 per cent overestimated to 40 to 60 per cent underestimated. Table 6-7 summarizes this method. 

Fixed-Capital Investment Summary. In this section, the fixed-capital investment is related to the purchase cost of the equipment items. If desired, the equipment list and the list of equipment purchase costs can be combined. The methods for estimating the fixed capital investment, beginning with the purchase costs, should be clearly stated. If a factored cost estimate is used, the overall factor or individual equipment factors should be noted. 

Total fixed capital cost estimation, total fixed capital investment = 3 to 10 (4 to 5 usual) X FOB major pieces of equipment. The factor decreases as more alloys are used in the process. 

As indicated in Table 16.8 the estimated total fixed capital investment for the four production schemes varies from a low of US 3.83 million for a batch-type bulk-blending plant to a high of US 19.37 million for the chemical granulation facility. In the case of the bulkblending plant, the storage facilities represent about 65% of the total fixed capital investment, whereas storage facilities account for only about 20%-24% of the total fixed investment in the more costly compaction, steam/ water, and chemical granulation units. 

To this point, it has been assumed that the log-mean tenperature correction factor, F, for all exchangers is the same and equal to 0.8. The reason that F is not assumed to be equal to unity is that, for heat exchangers in most practical applications, the flows of the hot and cold streams are never purely countercurrent. The most common type of heat exchanger in use in the chemical process industries is the shell-and-tube (S T) type. These units are typically made as multiples of the basic 1-shell pass, 2-tube pass (1-2) design. When estimating the fixed capital investment associated with the purchase and installation of the heat-exchanger network, the number of 1-2 S T exchangers is needed in addition to the total surface area of the network. 

SuperPro Designer estimates equipment cost using built-in cost correlations that are based on data derived from a number of vendors and literature sources. In addition, users have the flexibility to enter their own data and correlations for equipment cost estimation. The fixed capital investment is estimated based on equipment cost using various multipliers, some of which are equipment specific (e.g., installation cost) while others are plant specific (e.g., cost of piping, buildings, etc.). This approach is described in detail in the literatrue [6,142]. The rest of this section provides a summary of the cost analysis results for this example process. Table 15.2 shows the key economic evaluation results for this project. Key assumptions for the economic evaluations include 1) a new production suite will be built and dedicated to the manufacturing of this product 2) the entire direct fixed capital is depreciated linearly over a period of twelve years 3) the project lifetime is 15 years, and 4) 27,000 kg of final product is produced per year. 

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. 

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. 

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 ... 

The estimated values for the various contributions are given in Table 9-53, resulting in an estimate of 4,280,000 for the total fixed-capital investment, including a contingency factor. 

It is reported that between 10 and 11 million cars are taken apart every year in North America once the metallic portion has been recovered from the crushing operation, the remainder - representing over 20% of the total mass or 3.5 million tons - must be eliminated. Pyrovac, in collaboration with Universite Laval and under the sponsorship of E.T.P. Technologies, recently undertook a research programme to recover valuable products from this Automobile Shredder Residue. A process flow sheet for a 4000 kg/hr plant is presented, with fixed capital investment estimated to be 5 million US dollars. Details are given. 

Although there is quite a strong research effort in both the private and governmental sectors, especially in the United States, no firm plans to construct commercial Fischer-Tropsch plants have been announced. Nevertheless, several coal-conversion pilot plants are in an advanced stage of development, and conceptual designs, together with economic evaluations, have been produced for plants capable of processing 140,000 tons of coal per day (20). Such plants would involve a fixed capital investment of some 2.8 billion (1975 estimate) (2/). 

Equipment Cost Data The foundation of a fixed capital investment estimate is the equipment cost data. From this information, through the application of lactors or percentages based upon the estimator s experience, the fixed capital investment is developed. 

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