Midterm-review - Economic Analysis Procedure 1 De on le l...

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Economic Analysis Procedure 1. Decide on level of accuracy. What is required? How much data is available? 2. Estimate the Fixed Capital Investment. Select method of estimation. Choose the most accurate given your data. Go through an item by item estimation. 3. Estimate the Product Cost . Item by item estimation. 4. Estimate Cash Flow Sales price and total income, depreciation, taxation, profits (net, gross). 5. Select profitability criteria . Profitability Index, Net Present Worth 6. Recommendation ChE 4253 - Design I
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COST ESTIMATION Types Of Cost Estimates 1. Detailed Estimate . Based on Detailed Engineering. Accuracy: ± 5% 2. Definitive Estimate . Based on basic Engineering and quotes from suppliers and contractors. ± 10% 3. Preliminary Estimate . Enough for budget authorization. ± 20% 4. Study Estimate . Knowledge of major pieces of equipment ± 30% 5. Order of Magnitude estimate . Extrapolate similar plant cost Accuracy: over 30% ChE 4253 - Design I
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Methods For Estimating Capital Investment 1. Detailed-Item Estimate . ( ± 5% accuracy, contractor’s estimate) 2. Unit-Cost Estimate . See p. 250 in PT&W (10-20% accuracy, definitive or preliminary estimate) 3. Percentage of Delivered-Equipment Cost . See Table 6-9, p. 251 in PT&W. ( ± 10% accuracy) 4. Estimation based on “Lang” factors The Fixed Capital Investment is found by multiplying equipment cost by a factor (see Table 6-10, p. 254 in PT&W) ( ± 30% accuracy, order of magnitude estimate) ChE 4253 - Design I
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Methods For Estimating Capital Investment 5. Power factor applied to plant-capacity . Order of magnitude estimates based on the fixed capital investment for a similar plant. x: between 0.6 and 0.7 R: Capacity ratio, (new facility)/(old facility) 6. Turnover ratios Turnover Ratio=(gross annual sales)/FCI It can be anywhere between 0.2 and 5. Assumption for CPI (Chemical Process Industry): TR=1 ( 29 x old R C C = 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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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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DEPRECIATION Methods to Calculate Depreciation 1. Straight Line Depreciation : Value decreases linearly in time. D = (V- V S )/n D: Depreciation ($/year) V : Original value V S : Salvage value. n : Service life Book Value : V a =V-a D a : number of years of use. ChE 4253 - Design I
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Methods To Calculate Depreciation 8. Modified Accelerated Cost Recovery Method (MACRM): It is essentially a combination method allowed by the IRS. Uses double declining initially, and then switches to straight line. When does the switch happen? When f for straight line is higher than f for double declining!
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This note was uploaded on 09/07/2009 for the course CBME Kinetics & taught by Professor Lobban during the Spring '09 term at The University of Oklahoma.

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Midterm-review - Economic Analysis Procedure 1 De on le l...

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