Fixed capital investment estimation

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. 

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. 

Results obtained using this procedure have shown high correlation with fixed-capital investment estimates that have been obtained with more detailed techniques. Properly used, these factoring methods can yield quick fixed-capital investment requirements with accuracies sufficient for most economic-evaluation purposes. 

Capital Investment Cost. The capital investment involved in a proposed project is important because it represents the money that must be raised to get the project started, is used in profitabiUty forecasts, and is reflected in the estimated manufacturing cost of a product. The capital investment is classified herein as fixed capital, working capital, and land cost. Sample capital investment estimate forms provide for separate materials (M) and labor (L) categories, or just combined M L figures. 

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. 

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. 

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/). 

Example 4 Seven-Tenths Rule A company is considering the manufacture of150,000 tons annually of ethylene oxide by the direct oxidation of ethylene. According to Remer and Chai (1990), the cost capacity exponent for such a plant is 0.67. A subsidiary of the company built a 100,000-ton aimual capacity plant for 70 million fixed capital investment in 1996. Using the seven-tenths rule, estimate the cost of the proposed new facility in the third quarter 2004. 

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. 

Two general methods have been used to estimate piping costs when detailed flow sheets are not available. One method is to use a percentage of the FOB equipment costs or a percentage of the fixed capital investment. Typical figures are 80 to 100 percent of the FOB equipment costs or 20 to 30 percent of the fixed capital investment. This method is used... 

Electrical This item consists of transformers, wiring, switching gear, as well as instrumentation and control wiring. The installed costs of the electrical items may be estimated as 20 to 40 percent of the delivered equipment costs or 5 to 10 percent of the fixed capital investment for preliminary estimates. As with piping estimation, the process design must be well along toward completion before detailed electrical takeoffs can be made. 

Buildings and Structures The cost of the erection of buildings and structures in a chemical process plant as well as the plumbing, heating and ventilation, and miscellaneous building service items may be estimated as 20 to 50 percent of dehvered equipment costs or as 10 to 20 percent of the fixed capital investment for a preliminary estimate. 

Yards, Railroad Sidings, Roads, etc. This investment includes roads, railroad spurs, docks, and fences. A reasonable figure for preliminary estimates is 15 to 20 percent of the FOB equipment cost or 3 to 7 percent of the fixed capital investment for a preliminary estimate. 

Service Facilities For a process plant, utihty services such as steam, water, electric power, fuel, compressed air, shop facilities, and a cafeteria require capital ejq)enditures. The cost of these facihties lumped together may be 10 to 20 percent of the fixed capital investment for a preliminary estimate. Note Buildings, yards, and service facihties must oe well defined to obtain a definitive or detailed estimate.)... 

Holland et al. (1953) developed an expression for estimating annual manufacturing expenses for production rates other than the base case based upon fixed capital investment, labor requirements, and utility expense. 

Land for the project is available at 300,000. The fixed capital investment was estimated to be 12,000,000. A working capital of 1,800,000 is needed initially for the venture. Start-up expenses based upon past experience are estimated to be 750,000. The project qualifies under IRS guidelines as a 5-year class life investment. The company uses MACRS depreciation with the half-year convention. At the conclusion of the prmect, the land and working capital are returned to management. Develop a cash flow analysis for this project, using a cumulative cash position table (Table 9-25). 

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). 

For the alkylation unit, purchased-equipment costs may be estimated using the equipment-specification information of Table 1 and the cost data presented in Chaps. 14 through 16 of this text. Table 2 presents these costs updated to January 1, 1990. The required fixed-capital investment for the nonbiodegradable detergent manufacturing process may be estimated from the total purchased-equipment cost using the equipment-cost ratio method outlined in Table 17 of Chap. 6. The total purchased-equipment cost is, presented in... 

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.

Of the many factors which contribute to poor estimates of capital investments, the most significant one is usually traceable to sizable omissions of equipment, services, or auxiliary facilities rather than to gross errors in costing. A check list of items covering a new facility is an invaluable aid in making a complete estimation of the fixed-capital investment. Table 1 gives a typical list of these items. 

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. 

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. 

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 contractor s fee varies for different situations, but it can be estimated to be about 2 to 8 percent of the direct plant cost or 1.5 to 6 percent of the fixed-capital investment. 

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... 

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