Costing Flashcards
Define ‘Fixed Capital’
Total cost of the plant ready for start-up.
Give 2 examples of fixed capital costs
1) Equipment & installation
2) Design costs
Define ‘Working Capital’
Additional investment needed to start the plant & operate until income is earned.
Give 2 examples of working capital costs
1) Cost of start-up
2) Catalyst & raw materials
How do you calculate the total investment required
Total investment = fixed capital + working capital
Give 2 examples of fixed operating costs
1) Labour costs
2) Insurance
Give 2 examples of variable operating costs
1) Utilities
2) Feed materials
Give an example of direct & indirect overheads
Direct - site facilities
Indirect - research & development
What are the 4 methods used to estimate capital costs
1) Find a similar plant & adjust size
2) Time adjustment from the past/for future
3) Estimate cost of individual units & add together
4) Factorial method
How do you calculate the cost of a new plant from a similar plant?
Cost plant A = Cost of plant B x [Size A/SizeB]^n
where n = 2/3 (typically)
What is the purpose of ‘n’ when calculating plant costs based on similar plants? What is the general range & duplicate value of ‘n’?
Acknowledges scalability that doubling throughput does not double plant costs. When directly duplicated n=1 but generally n ranges between 0.4-0.8.
How do you calculate the cost of a plant using time adjustment from the past?
Using the Annual Chemical Engineering Plant Cost Index (Annual CEPCI) for each year then;
Cost (now) = Cost (then) x [CEPCI (now)/CEPCI (then)]
How do you calculate the cost of a plant using time adjustment for the future?
Use current inflation rate 1.4% and increase factor (1.014) to the power of the number of years ahead (y);
Cost (future) = Cost (now) x [1.0.14]^y
What does the factorial method take into account? Give 2 examples.
It takes account of costs of associated equipment & installations as well as the major process equipment. eg. storage & instruments.
How do you calculate the total physical plant cost (PPC) using the factorial method?
PPC = F x PCE
where; F = sum of individual factors & PCE = physical cost (major) equipment.
Define ‘Cash Flow’
Movement of money in a set time period.
Define what is meant by ‘Project Evaluation’
How long does it take to break even & the total return.
How do you evaluate the cost of a ‘small’ & ‘large’ project?
Small - use rate of return (RORI) based on capital & installation.
Large - use all cash flows for discounted cash flow method (DCF).
How do you calculate RORI?
RORI = [net cash flow at end of project/(life of project x original investment)] x 100
What is the ideal value of RORI & typical payback time?
40% & 18 months
What is incremental RORI used for? How is it calulated?
Determines whether extra capital spend is worth the net saving for desired % RORI compared to lowest capital option.
Incremental RORI = (difference net saving)/(difference capital cost)
Define ‘Discounted Cash Flow (DCF)’
Time value of money in terms of investment in which a discount rate is applied (i).
How do you calculate the net cash flow value in year t using the discount rate i?
F(t) = X (1 + i)^t
where X is the amount invested.
What does the ‘Net Present Value (NPV)’ depict? How is it calculated over 7 years?
It says how much the money is worth today.
NPV = Total DCF
NPV = [cash flow/(1 + i)^0] + [cash flow/(1 + i)^1] + … + [cash flow/(1 + i)^7]
How do you calculate the discount factor (DF) for year t?
DF = 1/(1+i)^t
How do you calculate the discounted cash flow (DCF) in year t?
DCF = DF x cash flow in year t DCF = cash flow/(1 + i)^t
What does the discounted cash flow rate of return (DCFR) depict?
Looks at the worst case scenario, what is the highest discount rate (i*) for the project to break even (NPV=0)?
NPV = total DCF = 0
What is depreciation?
Money taken aside from profits each year so when the plant is written off, money can be invested.
How do you calculate annual depreciation assuming a linear change?
Annual depreciation = (capital cost - scrap value)/plant life
How do you calculate the profits in year n assuming linear change?
Pn = Pn-1 - Ad
where Ad is the annual depreciation
How do you calculate annual depreciation assuming a fixed annual percentage (FAP)?
Annual depreciation = FAP x Pn-1
How do you calculate the profits in year n assuming fixed annual percentage (FAP) change?
Pn = P0 (1 - FAP)^n
Draw the cash flow curve and label; Working capital Maximum investment Payback time Break-even point Net future worth (NFW) Project Life Original Investment
See written notes
