Profitability evaluation examples

Fot illustrations of the applications of continuous interest compounding and continuous cash flow to cases of profitability evaluation, see Examples 2 and 3 in Chap. 10. 

The application of continuous interest compounding, along with a method of profitability evaluation which includes construction costs and other prestartup costs, is illustrated in the following example. 

Because of the reduced costs for the NTR computer, profitability evaluation including time value of money will tend to favor the replacement more than does the method of rate of return on investment as used for the solution of this example. 

The manager next evaluates the alternative whereby the lease for 100,000 sq. ft. of warehouse space is signed. The evaluation procedure is very similar to that for the previous case, but the outcome changes in terms of profit. For example, at the node D = 144, p = 1.45, the manager will require 44,000 square feet of warehouse space from the spot market at 1.45 per square foot because only 100,000 square feet have been leased at 1 per square foot. If demand happens to be less than 100,000 units. Trips Logistics still has to pay for the entire 100,000 square feet of leased space. For Period 2, the manager obtains the profit at each of the nine nodes, as shown in Table 6-7. 

Part I comprises three chapters that motivate the study of optimization by giving examples of different types of problems that may be encountered in chemical engineering. After discussing the three components in the previous list, we describe six steps that must be used in solving an optimization problem. A potential user of optimization must be able to translate a verbal description of the problem into the appropriate mathematical description. He or she should also understand how the problem formulation influences its solvability. We show how problem simplification, sensitivity analysis, and estimating the unknown parameters in models are important steps in model building. Chapter 3 discusses how the objective function should be developed. We focus on economic factors in this chapter and present several alternative methods of evaluating profitability. 

Another rather straightforward case, that of the cost of an already-developed drug, raises much the same issue. Suppose, for example, that one evaluates an already-developed and patented drug for treating autoimmune disease for a new use. The relevant price measure from a societal perspective is much below AWP. If programs for additional use are approved based on this measure, but firms continue to be paid AWP, firm profits will... 

The first stage in evaluating the profitability of a proposed new product is to compare the total cost of the product (for example, per tonne produced) with the current market price. It is also necessary to estimate future demand for the product, and to determine the trend in the selling price over several previous years. It is also necessary to estimate the number of years that the product can be sold at a satisfactory profit, this is more useful than estimating the possible operating life of a plant Backhurst and Harker (1973 p.47) make the following observation ... 

To conduct a pro forma analysis, it is necessary to construct two income statements using information from the current income statement and knowledge about the pharmacy and the third-party contract being evaluated. Information from the average net profit comparison and the differential analysis also will be needed. An example of a pro forma analysis for Good Service Pharmacy is presented in Table 16-6. The... 

The next section will explain in more detail the content of different levels. The approach will be applied throughout the whole book, although not in a repetitive manner. Actually, each case study will emphasize only generic conceptual elements. The case study regarding the manufacturing of cyclohexanone by phenol hydrogenation is a kind of leading example. Since the book focuses on technical aspects, there is no place for cost evaluation and profitability analysis. 

Step 5. Economic evaluation. Not shown in this example, but included in a process synthesis program such as PIP, are algorithms for costing and economic evaluation of the process. Process equipment is sized and priced and total plant investment is estimated. Requirements and costs for utilities and raw materials, other operating costs, and product values are estimated. These values are used to evaluate the profitability of the proposed process and can provide a sound basis for a more detailed design. 

For each conversion (for example, for 50 percent conversion), the five-year profit can be evaluated for the cases of one large separator and two small separators. Therefore, using the data given in Table 10 and neglecting the cost of feed which is a constant,... 

Computer simulation models have been formulated for cascade and Stratco sulfuric acid alkylation units. These complete models incorporate mathematical descriptions of all the interacting parts of the units, including reactors, distillation columns, compressors, condensers, and heat exchangers. Examples illus-strate diverse model applications. These Include identifying profitable unit modifications, comparing cascade to Stratco performance, evaluating optimal unit capacity and determining optimal deisobutanizer operation. 

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