Process Economics Flashcards
Profitability equation
(income - operating cost) / capital cost
Define capital cost
The cost to build a plant
Define working capital
Additional capital to start up and operate until income is generated
Working capital estimation
- 15% of Fixed Capital
- 4-6 months operating costs
- 3-4 months sales income
Define Fixed Capital Investment (FCI)
The total cost of designing, constructing and installing a plant
Define FCI - Inside Battery Limits (ISBL)
The cost of buying and installing all process equipment (direct and indirect costs)
Define FCI - Outside Battery Limits (OSBL)
The cost of additions to site infrastructure
FCI calculation methods
- Scaling
- Factors
- Step counting
Economy of scale
C2/C1 = (Q2/Q1)^x
where x is the scale factor
Lang factors
C = F(sum of Ce)
Step counting method
Provides order of magnitude estimate
- Based on main plant items.
- Based on number of process steps.
Wilson’s method
C = f x n x AUC x fm x fp x fT
Zevnik and Buchanan method
C = k x N x Q^0.6 x 10^(FT + FP + FM)
Timm’s method
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
Bridgwater’s method
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
Define inflation
The general increase in prices and costs, usually caused by imbalances between supply and demand.
Cost indices
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)
Operating costs
- Production costs
- General costs
Production costs
- Fixed costs
- Variable costs
- Overhead costs
Variable costs
- affected by feedstock choice, process route and plant location
- materials
- labour
- utilities
Labour costs
- operating
- supervision
Operating labour
- obtain number of employee-hours per day per process step from chart
- multiply by number of process steps
- gives total employee hrs per day
Supervision and management
- 15-25% of operating labour
Utilities
- depends on amount, location and source
- defined by mass balance
Fixed costs
- 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
Depreciation
Di = Cd/n
Depreciable value = initial cost of FCI - salvage value
General costs
- Administration = 15-25% of operating labour cost
- Distribution and marketing = 2-20% of total operating cost
- Research and development = 5% of total operating cost
Define profitability assessment
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)
Define profitability
A comparison of income to the investment required to produce that income
Minimum acceptable rate of return equation
net profit / total capital investment
Define interest
- 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
Simple interest equation
I = PiN F = P + I = P(1 + iN)
Compound interest equation
F = P(1 + i)^N
Capital repayment equation
A = P x [(i (1 + i)^n)/((1 + i)^n - 1)]
Gross profit equation
Gj = sj - coj
gross profit = sales revenue - total prod cost
dj = depreciation
Gj = sj - coj - dj
Net profit equation
Npj = Gj(1-ɸ)
income tax rate for UK = 20%
Cash flow equation
Aj = Npj + dj = (sj - coj)(1-ɸ) + djɸ
Breakeven analysis definition
A method for analysing relationship between cost, price and level of prod
breakeven point is when total product cost = revenue (income)
Define payback time
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)
Return on Investment (ROI)
- 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
Target ROI
Compare results of ROI to target that is set by company
Higher risk, higher target
Net Present Value
- 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
Define Target Rate of Return
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
Discounted cash flow rate of return (DCFrr)
Discount rate required to make NPV = 0
sum of CFn/(1 + i’)^n = 0
DCFrr > TRR, project goes ahead
Define sensitivity analysis
Adjusting key parameters to look at the impact on economic perfomance
