Production and Capital Cost Estimation

Even if insufficient technical information is available to design a plant completely, we must still make an economical evaluation to determine if it is economically and financially feasible. A project is economically feasible when it is more profitable than other competing projects, and financially feasible when management can raise the capital for its implementation. Although calculations may show that a given project could be extremely profitable, the capital requirements may strain the financial capabilities of the organization. In this case, the project may be abandoned unless partners can be found to share the risk. The economic evaluation of a process proceeds in several steps [1], These are  

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The main objective here is to determine the production cost of a chemical. Estimating the product-sales price and the return on investment is beyond the scope of this discussion. There are several texts, such as Valle-Riestra [20], Peters and Timmerhaus [4], and Holland and Wilkinson [38], that discuss methods of evaluating profitability and other aspects of process economics. 

The difficulty in a process evaluation is not the computations, but the variability in the terminology that appears in the literature, which is a result of differences in company practice. Another difficulty is that in many cases the basis of the economic data reported in the literature is not clear as to what is included in the data. When economic data are not clearly defined, our only recourse is to compare data from several sources or to assume the worst case. Baasel [37] discusses the pitfalls of economic data. 

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Chapter 2, Production and Capital Cost Estimation, only contains the essentials of chemical-engineering economics. Many students learn other aspects of engineering economics in a separate course. Rather than placing this chapter later in the book, it is placed here to show the student how equipment influences the production cost. Chapter 2 describes cash flow and working capital in a corporation. This chapter also describes the components of the production cost and how to calculate this cost. Finally, this chapter describes the components of capital cost and outlines a procedure for calculating the cost. Most of the other chapters discuss equipment selection and sizing needed for capital cost estimation. 

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