ENGINEERING ECONOMICS III ESTIMATING THE PROFITABILITY OF A CHEMICAL PLANT ◆ Estimating investment Q Estimating Cost of production ◆ Profitability evaluation E Return on Investment(ROI Payout time(①py) E DCF Rate ofReturn (DCFROR E Transfer price 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 1 ENGINEERING ECONOMICS III ESTIMATING THE PROFITABILITY OF A CHEMICAL PLANT t Estimating Investment t Estimating Cost of Production t Profitability Evaluation ð Return on Investment (ROI) ð Payout time (Tpay) ð DCF Rate of Return (DCFROR) ð Transfer Price
INVESTMENT ESTIMATION ◆ Total investment= Fixed Capital+ Working Capital+ start-Up Tiny= Fcap ◆ Rules of thumb Wcap 0.15 Tiny Stup.1 Fcap(Established nth/ plant C0.5 Fcap(First-of-a-King/ Pioneer/ plant So Tinv= Fcap+O. Fcap+o15 Tiny 1.3 Fcap(nth Plant 1.8 Fcap(Pioneer plant 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 2 INVESTMENT ESTIMATION t Total Investment = Fixed Capital + Working Capital + Start-Up Tinv = Fcap + Wcap + Stup t Rules of Thumb Wcap ~ 0.15 Tinv Stup ~ 0.1 Fcap (Established [nth] Plant) ~ 0.5 Fcap (First-of-a-King [Pioneer] Plant) So: Tinv = Fcap + 0.1 Fcap + 0.15 Tinv = 1.3 Fcap (nth Plant) = 1.8 Fcap (Pioneer Plant)
FIXED CAPITAL ESTIMATION I 4 Fixed Capital= Direct Cost Indirect cost o Direct Cost=Onsite offsite E Onsite. Cost of plant facilities shown on flowsheet aka isbl (Inside battery limits E offsite-Cost of supporting facilities(boiler house, waste treatment facilities, shop, lab, offices, etc) aka Osbl (Outside Battery limits ◆ Rule of Thumb offsite-045 Onsite(higher for grassroots plant, lower for established manufacturing complex with excess facilities 10/21/99 Engineering economics 3 3
10/21/99 Engineering Economics 3 3 FIXED CAPITAL ESTIMATION I t Fixed Capital = Direct Cost + Indirect Cost t Direct Cost = Onsite + Offsite ð Onsite - Cost of plant facilities shown on flowsheet aka ISBL (Inside Battery Limits) ð Offsite - Cost of supporting facilities (boiler house, waste treatment facilities, shop, lab, offices, etc.) aka OSBL (Outside Battery Limits) t Rule of Thumb Offsite ~ 0.45 Onsite (higher for grassroots plant, lower for established manufacturing complex with excess facilities)
FIXED CAPITAL ESTIMATION I o Direct cost =1. 45 onsite o Indirect Cost =Owner's Cost Contingency E Owner's Cost- engineering, supervision, construction expenses Rule of Thumb: Owner's Cost=0.05(Onsite +offsite 5 Contingency- Allowance for overlooked items and otherun anticipated expenses Rule of Thumb: Contingency=0.20(Onsite +Offsite A So, Fcap=(1. 45) (1.25)Onsite =1.8 Onsite Q And, Tiny=(1.3)(1. 8)Onsite=2.36 Onsite 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 4 FIXED CAPITAL ESTIMATION II t Direct Cost = 1.45 Onsite t Indirect Cost = Owner’s Cost + Contingency ð Owner’s Cost - engineering, supervision, construction expenses Rule of Thumb: Owner’s Cost = 0.05 (Onsite + Offsite) ð Contingency - Allowance for overlooked items and other unanticipated expenses Rule of Thumb: Contingency = 0.20(Onsite + Offsite) t So, Fcap = (1.45)(1.25) Onsite = 1.8 Onsite t And, Tinv = (1.3)(1.8) Onsite = 2.36 Onsite
ESTIMATION OF EQUIPMENT COSTS o Onsite= Cost of equipment purchase and installation ◆ Types of Estimates 5 Definitive: Required for capital commitment(+/-5%) Based on detailed design 2 Use vendor quotes, detailed bill of materials, etc. E Factored: Required for process commitment (+/-15% Based on detailed equipment design and purchased cost prcing a Based on factored installation costs E Conceptual: Used to guide process development(+/-30%) a Based on correlations(Guthrie) for installed cost 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 5 ESTIMATION OF EQUIPMENT COSTS t Onsite = Cost of Equipment Purchase and Installation t Types of Estimates ð Definitive : Required for capital commitment (+/- 5%) X Based on detailed design X Use vendor quotes, detailed bill of materials, etc. ð Factored: Required for process commitment (+/- 15%) X Based on detailed equipment design and purchased cost pricing X Based on factored installation costs ð Conceptual: Used to guide process development (+/- 30%) X Based on correlations (Guthrie) for installed cost
INSTALLATION COST FACTORS o Piping Fabrication and Installation (30-40% of Fcap) Foundations ffor equipment) Q Structural for equipment support) o Insulation and painting o Electrical ffor motors and heaters) Q Instrumentation and control systems 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 6 INSTALLATION COST FACTORS t Piping Fabrication and Installation (30 - 40% of Fcap) t Foundations (for equipment) t Structural (for equipment support) t Insulation and Painting t Electrical (for motors and heaters) t Instrumentation and control systems
ESTIMATION OF INSTALLED COSTS I A Method: Cost correlations based on dominant equipment size parameters E Heat exchangers-heat transfer area a E Pressure vessels-diameter d and height h E Compressors-boiler horsepower (BHP) ◆ Base case: E Carbon steel materials of construction E Low pressure(<150 Ps! in general) E Standard design type x Heat exchangers-floating head a Pressure vessels- vertical fabrication 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 7 ESTIMATION OF INSTALLED COSTS I t Method: Cost correlations based on dominant equipment size parameters ð Heat exchangers - heat transfer area A ð Pressure vessels - diameter D and height H ð Compressors - boiler horsepower (BHP) t Base Case: ð Carbon steel materials of construction ð Low pressure (< 150 PSI in general) ð Standard design type X Heat exchangers - floating head X Pressure vessels - vertical fabrication
ESTIMATION OF INSTALLED COSTS II o Base case adjustment Factors E Fm- materials of construction pressure E Fd-design o Adjustment for Inflation E Marshall swift Construction Cost Index E M&S=280 for 1969(Guthrie's cost basis E M&S=1100 for 1997(per Chemical engineering) o Ratio of Installed Cost to Purchased Cost Installed cost 3. 2 x Purchased Cost for base case conditions Q Accuracy:(See accuracy bounds dashed lines in douglas) 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 8 ESTIMATION OF INSTALLED COSTS II t Base Case Adjustment Factors ð Fm - materials of construction ð Fp - pressure ð Fd - design t Adjustment for Inflation ð Marshall & Swift Construction Cost Index ð M&S = 280 for 1969 (Guthrie’s cost basis) ð M&S = 1100 for 1997 (per Chemical Engineering) t Ratio of Installed Cost to Purchased Cost Installed Cost ~ 3.2 x Purchased Cost for base case conditions t Accuracy: (See accuracy bounds [dashed lines] in Douglas)
EXAMPLE o Heat Exchanger(A=2,000 ft2) E Stainless steel tubes, carbon steel shell (Fm=2.81) E Pressure =250 PSI (Fp=0. 1) E Kettle reboiler design(fd=1.35) Fc=(Fd+Fp)Fm=(1.45)(281)=4.07 o Purchased Cost(1997 S Purchased Cost=(M&s/280)101.3 A65 F (1100280(1013)(20006)(4.07)=S22000 Installed Cost Installed Cost=(2.29+Fc)/Fc x Purchased Cost =(229+4074.07X227,00S348,000 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 9 EXAMPLE t Heat Exchanger (A = 2,000 ft2 ) ð Stainless steel tubes, carbon steel shell (Fm = 2.81) ð Pressure = 250 PSI (Fp = 0.1) ð Kettle reboiler design (Fd = 1.35) Fc = (Fd + Fp)Fm = (1.45)(2.81) = 4.07 t Purchased Cost (1997 $) Purchased Cost = (M&S/280)101.3 A0.65 Fc = (1100/280)(101.3)(20000.65)(4.07) = $227,000 t Installed Cost Installed Cost = (2.29+Fc)/Fc x Purchased Cost = (2.29 + 4.07)/4.07 x 227,000 = $348,000
TRANSFER PRICE TP ◆ Definition TP=/COP CCF(Tiny)//Capacity Gives a product cost in S/b Q Useful measure of competitiveness of single-product processes E Compare with current and projected future product price E Transfer price should be less than product price E USed by sri for comparing competing technologies ◆ Example Plant capacity: 200 MM lblyr COP=S50 MMyr(S025/b) CCF=0.333 Tiny= S50 MM T=/50+165200=S0.3301 10/21/99 Engineering economics 3
10/21/99 Engineering Economics 3 10 TRANSFER PRICE (Tp) t Definition Tp = [COP + CCF (Tinv)]/Capacity Gives a product cost in $/lb t Useful measure of competitiveness of single-product processes ð Compare with current and projected future product price ð Transfer price should be less than product price ð Used by SRI for comparing competing technologies t Example Plant capacity: 200 MM lb/yr COP = $50 MM/yr ($025/lb) CCF = 0.333 Tinv = $50 MM Tp = [50 + 16.65]/200 = $0.333 /lb
