Capital cost fixed

Annual iadirect costs are estimated as percentages of the direct labor and fixed capital costs. Typical direct labor percentage ranges are 25—30% for payroll overhead, 15—20% for stores and suppHes, 10—20% for control laboratory, 10—20% for security, 10% for yard, and 10—15% for process improvements. That is, total iadirect costs are usually 80—115% of the direct labor cost (1). 

Capital Costs The total capital cost Cfc of a project consists of the fixed-capital cost Cpc phis the working-capital cost Cn c, phis the cost of laud and other nondepreciable costs Cp ... 

In the fourth case, a plant or a piece of equipment has a limited use-Ril life. The primary reason for the decrease in value is the decrease in future life and the consequent decrease in the number of years for which income will be earned. At the end of its life, the equipment may be worth nothing, or it may have a salvage or scrap value S. Thus a fixed-capital cost Cpc depreciates in value during its useful life of s years by an amount that is equal to (Cpc S). The useful life is taken from the startup of the plant. 

On the basis of sum-of-years-digits depreciation, the annual amount of depreciation for a specified number of years s for a plant of fixed-capital cost Cpc, scrap v ue S, and service life s is given by... 

A fourth method of computing depreciation (now seldom used) is the sinking-fund method. In this method, the annual depreciation A is the same for each year of the life of the equipment or plant. The series of equal amounts of depreciation Aq, invested at a fractional interest rate i and made at the end of each year over the life of the equipment or plant of s years, is used to build up a future sum of money equal to (Cpc S). This last is the fixed-capital cost of the equipment or plant minus its salvage or scrap value and is the total amount of depreciation during its useful life. The equation relating i Fc S) and Ao is simply the annual cost or payment equation, written either as... 

Figure 9-5 shows the fall in book value with time for a piece of equipment having a fixed-capital cost of 120,000, a useful hfe of 10 years, and a scrap value of 20,000. This fall in value is calculated by using (I) straight-line depreciation, (2) double-declining depreciation, and (3) sum-of-years-digits depreciation. 

Net annual cash income after tax A ci = 25,500 in each of 10 years Fixed-capital cost Cpc = 120,000... 

Capitalized Cost A piece of equipment of fixed-capital cost Cpc will have a finite hfe of n years. The capitalized cost of the equipment Ck is defined by... 

The capitahzed cost of a piece of fixed-capital cost Cpc is the amount of capital reqiiired to ensure that the equipment may be renewed in perpetuity. For a piece of equipment with no scrap value, Ck is given by... 

The estimated (DCFRR) and the estimated (NPV) are both functions of the estimated cumulative revenue from annual sales X As, the estimated cumulative total annual cost or expense X Ate, and the estimated fixed capital cost Cfc of the plant. The revenue from annual sales for each year is in turn the product of the sales price and sales volume. Initially it is desirable to select those values from the distribution cui ves of X As, X Ate, and Cfc which enable the maximum and minimum (DCFRR) and (NPV) to be calculated. 

The discounted-cash-flow rate of return (DCFRR) and net present value (NPV) are functions of the cumulative revenue from annual sales X AfE and the fixed-capital cost of the plant Cfc, among other factors. 

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. 

Let us consider a plant of fixed-capital cost Cfc- If the annual property taxes are taken as 0.02 Cfc, insurance as 0.01 Cfc, and maintenance as 0.06 Cfc, the annual investment-related cost woiild be 0.09 Cfc- Annual utilities cost is A. The annual processing cost Ap can be represented by... 

Equation (9-245) shows that in this particular case the fixed-capital cost per unit of input energy CpJW) must not exceed 160,000 (GJh" )" or 576 per kilowatt, to have a 1-year payback period if the heat pump is operational for 8000 h/year. For this case the corresponding value of y is about 0.12 for a heat pump with an operating life of 10 years purchased with money borrowed at a 10 percent rate of interest. 

Equation (9-245) also shows that the fixed-capital cost per unit of energy input must not exceed 40,000 (GJh ) h or 144 per... 

The first stage toward producing an accurate estimate is to use a standard cost code for all construction projects. Table 9-45 shows a suitable numerical cost code, and Table 9-46 shows a typical alphabetical-numerical code. The cost-code system can be used throughout the estimating and construction stages for the collection of cost data by manual or computer methods. There are numerous types of fixed-capital-cost estimates, but in 1958 the American Association of Cost Engineers defined five types as follows ... 

However, Lynn and Howland included in the fixed-capital cost not only money invested in production and storage facilities but also that invested in land, research and development costs, and any auxiliary facihties necessaiy to support the process. Typical values of capit ratios for the year 1958 are listed in Table 9-49. 

TABLE 9-44 Checklist of Items for Fixed-Capital-Cost Estimates... 

Single-factor methods collect the various items of expenditure into one factor, which is usually used to multiply the total cost of delivered equipment X (Ce( )del lo give the fixed-capital cost for plant within the battery limits ... 

Equipment Costs The cost of dehvered equipment forms the basis of most methods of estimating the fixed-capital cost. The equipment required can usually be divided into (1) processing equipment, (2) equipment for handling and storage of raw materials, and (3) finished products handling and storage equipment. 

Usually the cost of roads and walkways amounts to 0.2 to 1.2 percent of the fixed capital cost with a typical value of 0.6 percent. Similarly, railroads cost 0.3 to 0.9 percent of the fixed capital cost, having an average value of 0.6 percent. 

For control purposes it is advisable to estimate startup cost and time beforehand and then try to stay within the estimates. Tne general parameters which can be used to estimate startup cost Csu, which are usually between 2 and 20 percent of the batteiy-limit fixed-capital cost, are as follows ... 

Direct fixed-capital cost for plant (batteiy-limit capital), Cfc)bl... 

Complete Plant Costs It is difficult to compare costs of domestic and overseas plants owing to the wide variation in types of plants and sizes and the rapid changes in technology. Useful data are scarce, and the following comparisons must be used with caution and then only for order-of-magnitude estimates of fixed-capital costs. 

Table 9-63 uses the data of Fig. 9-44 to compare the relative fixed-capital costs for plant constnic tion in other countries with those for the United States. The relative cost ratios were developed from data similar to those in Table 9-62. Labor ratios were corrected for the different local rates and hours per working week, job duration, and degree of mechanization available in other countries. Some of these factors are difficult to estimate, and the final total ratios give a reasonable order-of-magnitiide value for relative construction costs for equivalent plants in the countries indicated.

Estimating start-up costs can be as simple as choosing 10% of the fixed capital cost, or as complicated as estimating each step of the start-up. If time permits, a detailed... 

TAC = Annual operating cost -I- 0.2 x Fixed capital cost. 

Historically, the electric power industry was characterized as being a natural monopoly. Natural monopolies typically occur in industries with veiyi large fixed capital costs and relatively low operating costs. The cost characteristics of these industries tend to make them the most efficient producers in a given regional market. However, since these natural monopolies face no competition, they have the ability, if left unchecked, to charge prices that could be considerably above costs. Industries with large infrastructure requirements, such as telecommunications, water... 

From Figure 6.2 the fixed capital cost for this capacity, for production from sulphur, is 13 x 106 US dollars. 

The factorial method of cost estimation is often attributed to Lang (1948). The fixed capital cost of the project is given as a function of the total purchase equipment cost by the equation ... 

Table 6.1. Typical factors for estimation of project fixed capital cost...

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