CH11 Process Engineering Economics - James R. Couper

CH11 Process Engineering Economics - James R. Couper - 11...

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11 Feasibility Analysis A feasibility analysis is prepared for the purpose of determining that a proposed investment meets the minimum requirements established by management. This analysis is in sufficient detail and quality to provide management with the facts necessary to make an investment decision. In this chapter, a detailed solution for a proposed investment will be presented to demonstrate the necessary steps in the preparation of a feasibility analysis. Personnel responsible for the development of this analysis should have an appreciation of the factors that affect the reliability and the expected accuracy of the information. 11.1 INFORMATION REQUIRED The amount of information necessary to prepare a feasibility analysis will depend upon the intended use and management’s desire. If the analysis is prepared to determine whether further research and/or pilot plant studies are necessary, then preliminary capital cost and operating expense estimates may be satisfactory with their inherent accuracies. However, if the objective is to request appropriation of funds, then more firm information is necessary to prepare definitive or detailed estimates. The minimum information required to prepare a feasibility analysis is: . Fixed capital investment estimate . Total capital investment . Total operating expense estimate
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. Marketing information . Cash flow analysis . Estimate of profitability In addition, management may also require break-even information, sensi- tivity and uncertainty analyses [1]. 11.1.1 Fixed Capital Investment In order to prepare an estimate of fixed capital, it is recommended that a form be developed and used as a checklist to be sure that no items have been omitted. A list including the purchased or delivered equipment costs be prepared as a first step. From this basic information, it is then a simple matter to calculate the fixed capital investment using the Lang, Hand, Wroth, or Brown methods as described in Chapter 4. These methods are used for study or preliminary estimates. If the Chilton method is to be used for a preliminary estimate, it is recommended that a form similar to Table 4.14 is recommended. The use of the Chilton form is illustrated in Example 11.1. For a definitive or detailed estimate, a code of accounts format similar to that in Chapter 4 is suggested (Table 4.21). The forms used in a feasibility analysis should state clearly the dollar amounts and the date of each estimate. All forms are designed so that data for other cases of scenarios may be reported by extending the tables to the right of the page. 11.1.2 Total Capital Investment The major items constituting the total capital investment are found in Table 11.1. Blank spaces have been included to allow the user the flexibility to include other capital items not listed in Table 11.1.
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This note was uploaded on 10/28/2008 for the course N n taught by Professor N during the Spring '08 term at Punjab Engineering College.

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CH11 Process Engineering Economics - James R. Couper - 11...

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