Process Economics

Question 1

Profitability equation

Answer 1

(income - operating cost) / capital cost

Question 2

Define capital cost

Answer 2

The cost to build a plant

Question 3

Define working capital

Answer 3

Additional capital to start up and operate until income is generated

Question 4

Working capital estimation

Answer 4

• 15% of Fixed Capital
• 4-6 months operating costs
• 3-4 months sales income

Question 5

Define Fixed Capital Investment (FCI)

Answer 5

The total cost of designing, constructing and installing a plant

Question 6

Define FCI - Inside Battery Limits (ISBL)

Answer 6

The cost of buying and installing all process equipment (direct and indirect costs)

Question 7

Define FCI - Outside Battery Limits (OSBL)

Answer 7

The cost of additions to site infrastructure

Question 8

FCI calculation methods

Answer 8

• Scaling
• Factors
• Step counting

Question 9

Economy of scale

Answer 9

C2/C1 = (Q2/Q1)^x

where x is the scale factor

Question 10

Lang factors

Answer 10

C = F(sum of Ce)

Question 11

Step counting method

Answer 11

Provides order of magnitude estimate

1. Based on main plant items.
2. Based on number of process steps.

Question 12

Wilson’s method

Answer 12

C = f x n x AUC x fm x fp x fT

Question 13

Zevnik and Buchanan method

Answer 13

C = k x N x Q^0.6 x 10^(FT + FP + FM)

Question 14

Timm’s method

Answer 14

For gas phase processes
C(£1992) = 8300 x N x Q^0.615
C(£1992) = 3860 x N x Q^0.639 x Fm x Tmax^0.066 x Pmax^-0.016

Question 15

Bridgwater’s method

Answer 15

For solid and/or liquid processes
If Q < 60,000 T/y, C = 380,000N(Q/s)^0.3
If Q > 60,000 T/y, C = 4320N(Q/s)^0.675

Question 16

Define inflation

Answer 16

The general increase in prices and costs, usually caused by imbalances between supply and demand.

Question 17

Cost indices

Answer 17

Mechanism to adjust costs for inflation (between years)

Cost in year A = Cost in year B x (Cost index in year A/Cost index in year B)

Question 18

Operating costs

Answer 18

• Production costs

- General costs

Question 19

Production costs

Answer 19

• Fixed costs
• Variable costs
• Overhead costs

Question 20

Variable costs

Answer 20

• affected by feedstock choice, process route and plant location
• materials
• labour
• utilities

Question 21

Labour costs

Answer 21

• operating

- supervision

Question 22

Operating labour

Answer 22

• obtain number of employee-hours per day per process step from chart
• multiply by number of process steps
• gives total employee hrs per day

Question 23

Supervision and management

Answer 23

• 15-25% of operating labour

Question 24

Utilities

Answer 24

• depends on amount, location and source

- defined by mass balance

Question 25

Fixed costs

Answer 25

- Maintenance = 2-10% of FCI - Depreciation - Insurance = 1% of FCI - Interest = 5-10% of borrowed capital - Rates and taxes = 2-4% of FCI for highly populated areas, 1-2% of FCI for less populated areas - Rent = 1-2% of FCI

Question 26

Depreciation

Answer 26

Di = Cd/n | Depreciable value = initial cost of FCI - salvage value

Question 27

General costs

Answer 27

- Administration = 15-25% of operating labour cost - Distribution and marketing = 2-20% of total operating cost - Research and development = 5% of total operating cost

Question 28

Define profitability assessment

Answer 28

Systematic methodology for comparing anticipated incomes from a planned investment to returns, in order to help make a sensible financial and technical decision as to whether to invest - min acceptable rate of return - payback time - return on investment (ROI) - net present value (NPV) - discounted cash flow rate of return (DCFrr)

Question 29

Define profitability

Answer 29

A comparison of income to the investment required to produce that income

Question 30

Minimum acceptable rate of return equation

Answer 30

net profit / total capital investment

Question 31

Define interest

Answer 31

- cost of borrowed money - earnings on money loaned - simple = payment at a constant rate based only on original principal - compound = interest earned on accumulated interest as well as principal amount

Question 32

Simple interest equation

Answer 32

``` I = PiN F = P + I = P(1 + iN) ```

Question 33

Compound interest equation

Answer 33

F = P(1 + i)^N

Question 34

Capital repayment equation

Answer 34

A = P x [(i (1 + i)^n)/((1 + i)^n - 1)]

Question 35

Gross profit equation

Answer 35

Gj = sj - coj gross profit = sales revenue - total prod cost dj = depreciation Gj = sj - coj - dj

Question 36

Net profit equation

Answer 36

Npj = Gj(1-ɸ) | income tax rate for UK = 20%

Question 37

Cash flow equation

Answer 37

Aj = Npj + dj = (sj - coj)(1-ɸ) + djɸ

Question 38

Breakeven analysis definition

Answer 38

A method for analysing relationship between cost, price and level of prod breakeven point is when total product cost = revenue (income)

Question 39

Define payback time

Answer 39

Time to recover initial investment, measures how long investment is at risk On cash flow diagram, payback time is for cumulative cash flow to become positive (intersect x-axis)

Question 40

Return on Investment (ROI)

Answer 40

- Efficiency of investment ``` ROI = [cumulative net cashflow / (plant life x initial investment)] x 100 ROI = [av annual surplus income over expenditure / (initial investment)] x 100 ```

Question 41

Target ROI

Answer 41

Compare results of ROI to target that is set by company | Higher risk, higher target

Question 42

Net Present Value

Answer 42

- sum of present values of annual net cash flows over the lifetime of a project NPV = sum of NCF/(1 + r)^n - NPV > 0, project is better than the bank option

Question 43

Define Target Rate of Return

Answer 43

The minimum return that a company will accept from its investment AKA hurdle rate NPV > 0, rate of return exceeds TRR, project should go ahead

Question 44

Discounted cash flow rate of return (DCFrr)

Answer 44

Discount rate required to make NPV = 0 sum of CFn/(1 + i')^n = 0 DCFrr > TRR, project goes ahead

Question 45

Define sensitivity analysis

Answer 45

Adjusting key parameters to look at the impact on economic perfomance