ECONOMICS AND IMPLEMENTATION ENG. KAREEM H. MOKHTAR

• Total capital investment

• Annual cost of a plant

• Time value

• Interest

• Cash flow diagram

• Alternative investment

• Optimization

TOTAL CAPITAL INVESTMENT

• Equipment Cost

• Fixed Capital Investment

• Working Capital Investment

ANNUAL COSTS OF A PLANT

• Production Cost

• Break Even Analysis

• Depreciation

EQUIPMENT COST

• Equipment cost could be calculated using charts, equations, or tables

• Factors to be taken into consideration

• Size of equipment (e.g.: diameter, height, volume or area of heat transfer).

• Material of construction.

• Operating conditions (e.g.: pressure).

CALCULATION

• Present cost = Old cost x𝑖𝑛𝑑𝑒𝑥 𝑣𝑎𝑙𝑢𝑒 𝑎𝑡 𝑝𝑟𝑒𝑠𝑒𝑛𝑡

𝑖𝑛𝑑𝑒𝑥 𝑣𝑎𝑙𝑢𝑒 𝑎𝑡 𝑝𝑎𝑠𝑡

EXERCISE

• Calculate the cost of a condenser with the following specifications

• fixed tube sheets

• area 25.3 m2

• carbon steel shell and tubes

• operating pressure 1 bar.

EXERCISE

• Calculate the cost of a Cooler with the following specifications

• U tubes

• area 10.1 m2,

• carbon steel shell and tubes

• operating pressure 5 bar.

TOTAL CAPITAL INVESTMENT (TCI)

• TCI is the money utilized in a project to make a profit.

• Fixed capital investment (FCI) + Working capital investment (WCI).

• FCI is the sum of money paid to build up a plant and make ready for start up.

(Recovered as a scarp value)

• WCI is the additional sum of money required to start and operate the plant to the

point when income is earned (1-3 months). (Totally recovered at the end of the

service life, theoretically)

FIXED CAPITAL INVESTMENT (FCI)

• By Scaling

• An approximate estimate of the capital cost

•𝐹𝐶𝐼 𝑜𝑓𝐴

𝐹𝐶𝐼 𝑜𝑓𝐵=

𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝐴

𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝐵

0.6

THE FACTORIAL METHOD

• Lang method

• Coulson’s method

• Physical plant cost (PPC)

• Indirect plant cost (IPC)

COULSON

WORKING CAPITAL INVESTMENT (WCI)

• WCI=5-30% FCI

• Typically 15% FCI

EXERCISE

• Pay back time = 𝐹𝐶𝐼

𝐴𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡

• % return on capital investment = ݑܣ ݐݎ

𝐹𝑖𝑥𝑒𝑑 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

• Break even analysis depends on the following variables:

• 1. The fixed production costs for a product.

2. The variable production costs for a product.

• 3. The product's unit price.

4. The product's expected unit sales

BREAK EVEN ANALYSIS

Revenue

total

variable

EXERCISE

• Draw a break even chart for a firm which operates at 60% capacity

with sales of $450,000 while the variable cost is $300,000 and finally

the fixed expenses are $100,000.

• From your chart, determine the amount of profit earned per year.

What was its BEP in dollars of sales and in % of capacity? Also

determine the profit if the plant operates at 90% capacity.