Payback analysis

Table 15.1 Payback analysis of typical 200 kilotonnes per year diaphragm-to-membrane conversion.

Easy to understand and communicate, payback analysis is a method of investment appraisal that calculates the time taken to repay the original capital outlay. Slightly nonsensical, it ignores returns after this point in time, and fails to account for the time value of money. It can, nevertheless, prove useful in fast-moving industries (computers), as it is often vital to recoup investment in a short space of time. 

Now that you have determined the likely savings in terms of annual process and waste-treatment operating costs associated with each option, consider the necessary investment required to implement each option. Investment can be assessed by looking at the payback period for each option that is, the time taken for a project to recover its financial outlay. A more detailed investment analysis may involve an assessment of the internal rate of return (IRR) and net present value (NPV) of the investment based on discounted cash flows. An analysis of investment risk allows you to rank the options identified. 

The full benefit of oil analysis can only be achieved by taking frequent samples trending the data for each machine in the plant. It can provide a wealth of information on which to base maintenance decisions. However, major payback is rarely possible without a consistent program of sampling. 

A life cycle cost analysis was done to evaluate the economic attractiveness of the various measure sets. Included in the analysis is the impact on equipment sizing, usually a saving. The sizing changes can result in a significant cost reduction for the measure sets. In order to realize the payback periods shown, equipment must be sized in accordance with load reductions. 

A real discount rate of 10% was used to convert all future expenses and savings into current dollars. This allowed calculation of the net present value of the savings and costs. Also calculated were the discounted payback period and the simple payback period. Each of these quantities was calculated over a life cycle analysis period of 20 years, the assumed life of the mechanical system. Maintenance costs were considered to remain constant in real terms. 

Economic analysis can determine the discounted profitability criteria in terms of payback period (PBP), net present value (NPV), and rate of return (ROR) from discounted cash flow diagram, in which each of the annual cash flow is discounted to time zero for the LHS system. PBP is the time required, after the construction, to recover the fixed capital investment. NPV shows the cumulative discounted cash value at the end of useful life. Positive values of NPV and shorter PBP are preferred. ROR is the interest rate at which all the cash flows must be discounted to obtain zero NPV. If ROR is greater than the internal discount rate, then the LHS system is considered feasible (Turton et al., 2003). 

Economic analysis of designs at lower natural hypochlorite strengths equally show potential investment benefits. They are, however, much less significant than the batch and high concentration cases described above. While an economic case can be made for retrofitting an in-loop reactor to a system that already has an end-of-pipe treatment system based on payback, it is not always clear that this is a better option than an end-of-pipe hybrid system as described earlier in the chapter. For a particular system the optimum solution is often as much a function of the required expenditure on the heat exchangers as it is the relative cost of the reactor options. 

One aspect that has limited the use and introduction of process analyzers, and in particular FTIR analyzers, has been the high cost of the analyzer, and the resultant high cost per analysis point. Many process analyzer installations are financially evaluated in terms of cost per analysis or analysis point, as well as cost of ownership and the rate of payback. Typically, these costs need to be kept as low as possible... 

The cost per analysis point and the projected payback are only two metrics used to evaluate the feasibility of installing a process analyzer. If a spectrometer replaces an existing service intensive analyzer then that is a positive situation. Also, because of the flexibility of infrared analyses, it is feasible that a mid-IR analyzer might replace several existing analyzers it is a case where direct chemical information from IR can be more important than certain inferential methods that only provide indirect information. Also, if the only other... 

Cash Payback is calculated by a cash flow analysis. The cash flow generated by an investment is the cash value of the benefits it achieves less the cash outlays to pay for the capital investment. Assuming that the system s costs precede its benefits, cash... 

The payback period(or payout time) is the number of years from plant start-up required to recover all expenses involved in a project, if all the pre-tax profits were used for this purpose. Depreciation charges are not included in the operating costs. Expenses not incurred directly in the design and construction of the plant are excluded, the analysis is intended to demonstrate the best means of allocating the present and future resources of a company. A payback period of less than five years is usually required for a project to proceed. However, the payback period does not consider the timing of the payments or the profits earned by the plant after the payback period. 

The payback period estimated above shows that the venture is acceptable, since investors in similar power plants generally want payback periods of 7 years or less. (The estimates in this chapter have been neither confirmed nor denied by Oxford Energy. A formal return-on-investment analysis would be necessary to be really accurate. This would include the financing structure of the venture, interest rates, depreciation, and tax considerations.)... 

The efficiency of the overall utility distribution system is an indication of the losses that occur as a result of insufficient thermal insulation, leaking steam traps, etc. When considering an alternative optimization strategy, it is recommended to measure the energy consumption both before and after a particular strategy is implemented so that an accurate cost-benefit analysis can be made and the payback periods of the various strategies can be compared. 

Therefore, the economic potential at the I/O level could be seen merely as a tool for selecting the chemical route, and at the same time for setting targets when purchasing raw materials. As a rule of thumb, the ratio of selling prices of products to the purchasing prices of raw materials should be a minimum of two when the payback time of the total capital investment is greater than five years. Preferably, this ratio should be about three for a payback time of three years [3]. More accurate calculations may be carried out easily by means of profitability analysis tools. 

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