Estimation of the Total Capital Investment

As a project for manufacturing a new or existing chemical by a new process progresses from laboratory research through pilot-plant development to a decision for plant construction, a number of process-design studies of increasing complexity may be made, accompanied at each step by capital-cost estimates of increasing levels of accuracy as follows  

Order-of-magnitude estimate based on bench-scale laboratory data sufficient to determine the type of equipment and its arrangement to convert the feedstock(s) to produces). 

Study estimate based on a preliminary process design. 

Preliminary estimate based on detaUed process design studies leading to an optimized process design. 

Definitive estimate based on a detailed plant design, including detailed drawings and cost estimates, sufficient to apply cost accounting. 

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An example of an estimate of the total capital investment for a processing plant is given in Tables 16.14 and 16.15 for an ammonia plant producing 1 billion Ib/yr. The costs are for the year 2000 at a U.S. Midwest location. The plant is part of an integrated complex. The process involves a variety of equipment, including gas compressors, pumps, heat exchangers, a catalytic reactor, a distillation column, an absorber, a flash drum, a gas adsorber, and gas permeation membrane separators. The material of construction is almost exclusively carbon steel. 

Make an order-of-magnitude estimate of the total capital investment, as of the year 2001 (MS = 1,110), to produce benzene according to the toluene hydrodealkylation process shown in Figure 5.13. Assume an overall conversion of toluene to benzene of 95% and 330 days of operation per year. Also, assume the makeup gas enters at the desired pressure and a clay adsorption treater must be added to the flow sheet after the stabilizer. The treater removes contaminants that would prevent the benzene product from meeting specifications. In addition, in order for the reactor to handle the high temperature, it must have a brick lining on the inside, so take a material factor of Fm = 15. Otherwise, aU major equipment is constructed of carbon steel. The plant will be constructed outdoors with major additions to existing facilities. 

Be able to estimate annual costs using a standard cost sheet and estimate the annual cash flows and the working capital. The latter completes the estimation of the total capital investment, Ctci. in Table 16.9. 

Estimates of the total capital investment for the combined process range frtxn a ratio of 5 1 to 10 1 when compared with sulfuric acid from sulfur. 

For a quick estimation of the total capital investment the overall factor method developed by Lang (1948) is helpftil. The costs of each piece of equipment is estimated and summed and, finally, multiplied with the overall factor. Typically, the total costs are four times higher than the main items (Table 5.5.1). Values of this overall factor given in the literature vary in the range 3-6. According to Lang (1948),... 

There is also, however, an increasing resistance by local communities to siting new plants in many of these European areas. Moreover, the environmental regulations have become increasingly stringent in Germany, the Netherlands, and Erance. It is estimated that the environment and other safety-related costs in Germany have risen to the point where 30% of the total capital investment needed is for environmental and safety measures. 

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. 

Except for shell and tube exchangers, purchased costs were estimated by means of charts from the Chauvel Method (Chauvel, 2000), then multiplied by correcting factors (materials for example). Other charts have then been used for purchased costs, the second step requiring correcting factors being the same as previously. These different methods show finally various results with a decrease of about 24% of the total capital investment (Peters, 2003 Ulrich, 2004). 

I would like to cite a few specifics of the situation today. Using the COGAS Process as an example, the most recent estimate of the total plant investment cost of the commercial COGAS plant is 1.4 billion in mid-1978 dollars (4). In addition, there will be costs for land, adminstration during construction, start-up, working capital requirement to 1.5 billion exclusive of interest during construction before the plant produces at design capacity. 

For the normal solid-fluid chemical processing plant, a value of 13 percent of the purchased equipment is normally used to estimate the total instrumentation cost. This cost represents approximately 3 percent of the total capital investment. Depending on the complexity of the instruments and the service, additional charges for installation and accessories may amount to 50 to 70 percent of the purchased cost, with the installation charges being approximately equal to the cost for accessories. 

The cost for land and the accompanying surveys and fees depends on the location of the property and may vary by a cost factor per acre as high as thirty to fifty between a rural district and a highly industrialized area. As a rough average, land costs for industrial plants amount to 4 to 8 percent of the purchased-equipment cost or 1 to 2 percent of the total capital investment. Because the value of land usually does not decrease with time, this cost should not be included in the fixed-capital investment when estimating certain annual operating costs, such as depreciation. 

A 70,000 ton/year, 22,000,000 plant was started up in 2001. Since then, it has been operating at capacity for an average of 7200 h/year. It is staffed by 25 full-time production workers ( 32/h), two maintenance workers ( 35/h), and four shift supervisors ( 39/h). All labor rates include payroll and plant overhead. The process consumes 530 kilowatts of electricity ( 0.045/kWh), 50,000 gal/h of water ( 0.15/thousand gal), and 8.75 tons/h of feedstock ( 0.78/lb). Maintenance materials are estimated as equivalent to maintenance labor. Royalties amount to 4.20 per ton of product. The property taxes, insurance, and administrative charges total 5.2% of the total capital investment. Find the direct and indirect annual costs for the plant. 

A.2.3 The Electric Power Industry The total corrosion costs in the electric power industry in the generation and distribution of power were estimated to be 4 billion and the corrosion-related expenditure was estimated at 1.1 billion. A significant portion of excess capacity of power plants was attributed to corrosion, where corrosion-related excess capacity was assumed to be approximately 10% of the total capital investment. 

Step 2 Using the data in Step 1 with f.o.b. equipment cost data, add to the equipment list the cost and the corresponding cost index of the cost data. Update the cost data to the current cost index, sum the updated purchase costs to obtain the total f.o.b. purchase cost, Cp, and multiply by 1.05 to account for delivery of the equipment to the plant site. Then, multiply the result by an appropriate Lang factor,/l, to obtain the total permanent investment (fixed capital investment), C-ppi (i.e., without the working capital), or the total capital investment, Ctci (i.e., including an estimate of the working capital at 15% of the total capital investment or 17.6% of the total permanent investment). 

The factor, 1.18, in Eq. (16.11) covers a contingency of 15% and a contractor fee of 3%. As with the Lang-factor method, the working capital can be estimated at 15% of the total capital investment, which is equivalent to 17.6% of the total permanent investment, or it can be estimated in detail by the method in Section 17.3. 

Toluene Hydrodealkylation Process—Capital Cost Estimation. See Exercise 17.21 for a complete economic analysis, including equipment sizing, cost estimation, and calculation of the total capital investment. 

Note that for this case, the working capital is 55.5% of the total capital investment and much more than the commonly used approximate estimate of 15% of total capital investment. In this example, it appears that working capital is more a function of annual sales (perhaps 10%) than of total depreciable... 

Next, the working capital is presented, with a discussion of how it was estimated. Then the total capital investment is presented. 

The costs associated with the day-to-day operation of a chemical plant must be estimated before the economic feasibility of a proposed process can be assessed. This chapter introduces the inportant factors affecting the manufacturing cost and provides methods to estimate each factor. In order to estimate the manufacturing cost, we need process information provided on the PFD, an estimate of the fixed capital investment, and an estimate of the number of operators required to operate the plant. The fixed capital investment is the same as either the total module cost or the grassroots cost defined in Chapter 7. Manufacturing costs are expressed in units of dollars per unit time, in contrast to the capital costs, which are expressed in dollars. How we treat these two costs, expressed in different units, to judge the economic merit of a process is covered in Chapters 2 and Ifi. 

Estimation of the Fixed Capital Investment AND THE Total Capital Investment... 

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 ... 

Maintenance salaries and costs for laboratories are estimated as 3% of the total capital of investment, ie 3% of 30 million dollars is 900,000. The figures for payroll charges calculated back to one kg of L-phenylalanine are given in Table 8.6. 

After installation, the total cost of equipment (direct permanent investment) is 6,557,000. Allowing 18% for the cost of contingencies and contractor fees ( 1,180,300), the total depreciable capital is estimated to be 7,737,000. Ten percent of this is assumed to cover the cost of startup, 773,700, giving a total permanent investment of 8,511,000. Working capital is estimated to cover accounts receivable that is, the sales of 30 days production of wafers (41,800 wafers), assumed to sell for 260/wafer, giving 10,868,000. Together with a 2-day inventory of wafers, valued at the product price, the total working capital is 11,520,000. Hence, the total capital investment is 20,031,000. 

The total capital investment associated with feed handling, pretreatment, neutralization/conditioning, saccharification, and filtrationis amortized over the 20-yr design life of the plant at a fractional interest rate of 10%. Annual labor costs are estimated by NREL to be 2,150,000 (2). These costs were estimated using data from similar ethanol plants. 

The overall purification yield of recombinant enzyme is affected by the scale-up and may vary from plant to plant. The profitability at lower yields and at a constant selling price was also determined. A 10% reduction in yield resulted in a 12.9% decrease in the ROI. Conversely, the effect of increasing the plant capacity between 4545 (base case) and 45,450 kg of corn per batch on rGUS production, capital investment, UPC and ROI was estimated. A five-fold increase in capacity resulted in a reduction of 30% in the UPC, and an increase in the ROI from 52 to 91%. Further increase in the capacity did not have a significant effect on the UPC and ROI. With a five-fold increase in the capacity the total capital investment increased by a factor of 3.3, labor, administrative, and overhead expenses doubled, and the rest of the operating costs increased proportionally with the capacity. 

The total capital investments costs was estimated on the basis of the equipment costs plus a specific installation factor and is shown in Table 3. An additional of 20% of the total installed equipment costs was included for engineering and contingency costs. The main part of these costs are due to the extraction column, EC, (this includes the price of steel to be used to make the column and the packing expenses) and the main gas compressor, C. 

Methods for estimating the total capital investment required for a given plant are presented in the first part of this chapter. Determination of the necessary... 

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