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Process Economics and Loss Prevention > Process Economics > Flashcards

Process Economics Flashcards

1
Q

Profitability equation

A

(income - operating cost) / capital cost

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2
Q

Define capital cost

A

The cost to build a plant

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3
Q

Define working capital

A

Additional capital to start up and operate until income is generated

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4
Q

Working capital estimation

A
  • 15% of Fixed Capital
  • 4-6 months operating costs
  • 3-4 months sales income
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5
Q

Define Fixed Capital Investment (FCI)

A

The total cost of designing, constructing and installing a plant

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6
Q

Define FCI - Inside Battery Limits (ISBL)

A

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

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7
Q

Define FCI - Outside Battery Limits (OSBL)

A

The cost of additions to site infrastructure

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8
Q

FCI calculation methods

A
  • Scaling
  • Factors
  • Step counting
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9
Q

Economy of scale

A

C2/C1 = (Q2/Q1)^x

where x is the scale factor

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10
Q

Lang factors

A

C = F(sum of Ce)

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11
Q

Step counting method

A

Provides order of magnitude estimate

  1. Based on main plant items.
  2. Based on number of process steps.
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12
Q

Wilson’s method

A

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

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13
Q

Zevnik and Buchanan method

A

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

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14
Q

Timm’s method

A

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

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15
Q

Bridgwater’s method

A

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

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16
Q

Define inflation

A

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

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17
Q

Cost indices

A

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)

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18
Q

Operating costs

A
  • Production costs

- General costs

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19
Q

Production costs

A
  • Fixed costs
  • Variable costs
  • Overhead costs
20
Q

Variable costs

A
  • affected by feedstock choice, process route and plant location
  • materials
  • labour
  • utilities
21
Q

Labour costs

A
  • operating

- supervision

22
Q

Operating labour

A
  • obtain number of employee-hours per day per process step from chart
  • multiply by number of process steps
  • gives total employee hrs per day
23
Q

Supervision and management

A
  • 15-25% of operating labour
24
Q

Utilities

A
  • depends on amount, location and source

- defined by mass balance

25
Q

Fixed costs

A
  • 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
26
Q

Depreciation

A

Di = Cd/n

Depreciable value = initial cost of FCI - salvage value

27
Q

General costs

A
  • Administration = 15-25% of operating labour cost
  • Distribution and marketing = 2-20% of total operating cost
  • Research and development = 5% of total operating cost
28
Q

Define profitability assessment

A

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)
29
Q

Define profitability

A

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

30
Q

Minimum acceptable rate of return equation

A

net profit / total capital investment

31
Q

Define interest

A
  • 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
32
Q

Simple interest equation

A 
I = PiN
F = P + I = P(1 + iN)
33
Q

Compound interest equation

A

F = P(1 + i)^N

34
Q

Capital repayment equation

A

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

35
Q

Gross profit equation

A

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

36
Q

Net profit equation

A

Npj = Gj(1-ɸ)

income tax rate for UK = 20%

37
Q

Cash flow equation

A

Aj = Npj + dj = (sj - coj)(1-ɸ) + djɸ

38
Q

Breakeven analysis definition

A

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

39
Q

Define payback time

A

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)

40
Q

Return on Investment (ROI)

A
  • 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
41
Q

Target ROI

A

Compare results of ROI to target that is set by company

Higher risk, higher target

42
Q

Net Present Value

A
  • 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
43
Q

Define Target Rate of Return

A

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

44
Q

Discounted cash flow rate of return (DCFrr)

A

Discount rate required to make NPV = 0

sum of CFn/(1 + i’)^n = 0

DCFrr > TRR, project goes ahead

45
Q

Define sensitivity analysis

A

Adjusting key parameters to look at the impact on economic perfomance

Process Economics and Loss Prevention (1 decks)

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