econ-lec1 - TEACHING ASSISTANTS Roman Voronov E-m burn@ du...

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TEACHING ASSISTANTS Roman Voronov E-mail: burn@ou.edu Office hours: Friday 3:00-4:30pm in M206 Debora De Faria E-mail: dfaria@ou.edu Office hours: Thursday 1:30-3:00pm in T113 Kien Nguyen E-mail: Kien.T.Nguyen-1@ou.edu Office hours: Wednesday 2:00-3:30pm in T224 ChE 4253 - Design I
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ECONOMIC DESIGN CRITERIA BASIC ECONOMIC TERMS Total Capital Investment , TCI or I (Total Capital Investment)=(Fixed Capital Investment)+ (Working Capital) TCI = FCI + WC or: I= I F +I W reduced risk Total Fixed Capital Investment , FCI or I F FCI = (Direct Costs) + (Indirect Costs) Working Capital , WC or I W Cash, raw materials, stock, etc. About 10-20% of TCI. ChE 4253 - Design I
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BASIC ECONOMIC TERMS Product Cost , C C=C I +C Q O G Fixed Charges , C I Do not depend on production level (insurance, property taxes, depreciation, rent etc.) Direct Production Cost Q Labor, utilities, raw materials, maintenance, supplies, royalties etc. Plant Overhead O Recreation, employee facilities, packaging etc. General Expenses G Administration, marketing, R&D, distribution. ChE 4253 - Design I
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BASIC ECONOMIC TERMS Income from Sales , S in ($/yr) Gross Earnings R in ($/yr) R = S - C Net Earnings P in ($/yr) P = R - eI - (R - d I ) t (Net Profit) = (Gross) - (Amortization) - (Taxes) Depreciation rate Recovery of Investment, e Taxation purposes, d Straight line depreciation, e=1/n Depreciation with capital reinvestment (sinking fund method) ( 29 1 1 - + = n i i e ChE 4253 - Design I
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BASIC ECONOMIC TERMS Salvage Value Net cash obtainable from the sale of used property (above charges for removal and sale) Scrap value : Salvage value after dismantling a unit. Present Value Book Value : (Total Capital Investment) - (All Depreciation) Market Value : Cash obtainable from selling the unit. Replacement Value : Cost of obtaining the same property. ChE 4253 - Design I
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BASIC ECONOMIC TERMS Depreciation Reduction in value due to any causes. Example : Pump Cost : C V = $12,000 Scrap value : V S = $2,000 Depreciation : C V - V S = $10,000 For engineers, depreciation is considered as a cost for using the equipment. ChE 4253 - Design I
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DEPRECIATION Types Of Depreciation Physical : Wear and Tear, corrosion, accidents, age deterioration. Functional: All other causes. Obsolescence : Due to technological advances. Depletion : Loss due to materials consumed. Applicable to Natural Resources (timber, mineral, oil deposits) IRS: “A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business including a reasonable allowance for obsolescence” ChE 4253 - Design I
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BASIC ECONOMIC TERMS Service Life The IRS has determined various values (See PT&W for complete list). Group 1 : General Business Assets. (Office furniture, Land, Buildings, etc) Group 2: Non-manufacturing activities: (Agriculture, Fishing, Mining, etc.) Group 3 : Manufacturing, e.g. Petroleum Refining: 16 years. Chemicals 11 years. Group 4: Transportation, Communication and Public Utilities: (Electrical, Gas, Motor transport, Radio and TV broadcasting, railroad, etc.) ChE 4253 - Design I
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BASIC ECONOMIC TERMS Total Capital Investment, I I D Direct Costs I I Indirect Costs I W Working Capital S, Income from sales R C Product Cost (R-d I F ) t Taxes D=e I F Depreciation P, Net Earnings I F CF ChE 4253 - Design I
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econ-lec1 - TEACHING ASSISTANTS Roman Voronov E-m burn@ du...

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