Investment Expenditures

Investment expenditures have to be estimated both for expansions of existing plants and for construction of new plants. However, a comprehensive engineering study is too costly to be performed as part of an initial strategic analysis. Instead, estimation techniques combining historical data with findings from empirical research can be used. 

Once the investment expenditures for plants/production lines are established for a single country, they have to be localized to account for cost differentials between countries. To this end, location adjustment factors can be employed (cf. McMillan and Humphreys 1990). Location factors for chemical industry can for example be obtained from SRI Consulting. A comprehensive overview of commercial sources for cost, inflation and location factors is published in Remer and Mattos (2003). Kohn et al. (1997) discuss how to construct country-specific factors from the U.S.-based Chemical Engineering s Plant Cost index. 

Transport to port Sea freight typically denominated typically in site currency denominated 

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Under expanded reproduction, surplus value is clearly realized by capital investment and capitalists consumption. Hence for Sardoni (1989 214), Capitalists profits therefore now depend on their consumption and investment expenditure, just as in Kalecki s analysis. There is strong evidence for the Kalecki principle, that capitalists earn what they spend, operating in Marx s analysis of expanded reproduction. 

Fleischmann et al. (2006) provide a global production network planning model used at BMW that extends the simpler load planning model proposed by Flenrich (2002). The model is a multi-period, multi-product model with an objective function that maximizes the pre-tax net present value of the network. It includes decisions on product-plant allocation, production volumes, material sourcing volumes by supply region, structural and product-specific investments and use of overtime capacity. A major contribution of the model is the incorporation of the time-distribution of investment expenditures typically observed in automobile production networks. While tariffs are included in the transportation costs, the model does not consider further aspects of international trade such as currencies, duty drawbacks or local content rules which play a major role in practice. 

The total investment expenditures incurred at a site have to be calculated in two steps. Equation (3.10) calculates the investments per plant. These are aggregated to the site level and adjusted for government investment incentives, defined as percentage of total investments, in equation (3.11). Investment expenditures are allocated to the time period preceding the commissioning of the technical capacity. A non-negativity constraint (3.54) ensures that plant/production line shutdowns do not lead to negative investment expenditures. 

Profits at the site level are calculated in equation (3.84) by subtracting all costs incurred at the site from the revenues realized at the site from finished and intermediate products as calculated by equation (3.85). In addition to the cost items already contained in the basic model formulation, the costs of intermediates received from other sites have to be allocated to the receiving site for tax purposes and the depreciation costs have to be subtracted instead of investment expenditures. Equation (3.86) defines that depreciation costs are calculated by adding to the depreciation plan of old assets (which has to be determined outside the model) depreciation incurred from new investments. Based on the assumption of straight-line depreciation and a depreciation period that exceeds the planning horizon these costs can be calculated as a fixed percentage of the total investments incurred at a site. 

In case the costs for operating the equipment and/or capital expenditures to set up the equipment have to be considered explicitly, the variable (3.6) and fixed (3.8) cost calculations and the calculation of investment expenditures (3.11) have to be extended as shown below. Additionally, the fixed-cost reduction achieved by temporarily shutting down a production line has to be accounted for as shown in equation (3.8a). 

The integration of capital expenditures for the shared resources as shown in equation (3.11a) rests on the assumption that the number of equipments is correlated to the number of production lines. If the model can independently select the shared resource capacity, it is theoretically possible that the number of shared resources operated increases while the number of production lines used decreases. In this case a separate calculation of the investment expenditures for shared resources is required to avoid that "negative" capital expenditures from capacity reductions that are eliminated via the non-negativity constraint (3.54) offset the expenditures for shared resource installations. 

The net present value method is the most popular one in use today. An arbitrary time frame (i.e., time zero or the present time) is selected as the basis for the calculations. All investment expenditures made prior to time zero are compounded forward to time zero, and all income items are discounted back to time zero using an interest rate (or arbitrary barrier return ) set by management at a few percentage points above the cost of capital, depending on the project risk. The equation for determining the net present value is... 

In the general case, if cash flow arising from the investment expenditure commences a years after paying for it, (a may be zero or one as above, and need not be an integer)... 

Profit oriented strategies their aim is to plan actions in a profit-maximizing manner, which means, for instance, phasing out technical devices that bring no profit, and reducing investment expenditure to the level that is absolutely essential to sustain economic activity of a company. 

As follows from Fig. 12.8, the economically viable production of syngas by modern methods is not less than 300,000 m /h. With decreasing production capacity, specific investment expenditures (Fig. 12.10), just as the specific operational and all other costs, are soaring. 

The reason for this is that, when extrapolated to small production volumes of industrial processes, starting from a certain level, the so-called six-tenths rule, which relates the investment expenditures and production capacity as... 

FIGURE 12.18 Logarithmic dependence of the investment expenditure on the production capacity [350]. 

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