Economics 2 Students

8/22/2019 Economics 2 Students

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Capital Cost Estimation

Fall 2007

Chapter 16 Seider


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Capital Cost Estimation

Fixed Capital - Real equipment

Cost more than bare module - Custom

designed for plant Use to design future plant - Inflation

Cost of cost estimation

Cost more than 10% of total plant cost for 5%accuracy - P& ID

Predesign - 20 to 30% accurate - PFD


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Variation of Equipment Cost with Size

(Economy of Scale) Escalation of Cost with Capacity

cost1 = purchase price of equipment

capacity1 = size or capacity in year

cost2 = purchase price of same equipment in sameyear but different capacity, (capacity2)

m = size or capacity exponent

m

capacity

capacity

t

t

1

2

1

2

cos

cos


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Consider Storage Tanks

Find m Two tanks, identical material, different capacities

V- volume

R - radius

The volume of tankVcan be similarly expressed

giving for the volume or capacity ratio

3

11

3

4RV

3

1

2

1

2

R

R

V

V


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Cost is proportional toA not V

Area ratio

At a selling price ofCs ($ per m2) the

purchase cost would be:

2

11 4 RA

2

1

2

1

2

R

R

A

A

sCRCost2

224

sCRCost2

114


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Or

Replacing the radius ratio with the capacityratio:

Substituting forR2/R1:

In the tank case m = 2/3

2

coscos

1

2

12

R

Rtt

3

1

2

1

2

1

2

R

R

capacity

capacity

V

V

3/2

12 1

2

capacity

capacity

CostCost


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Exponents for Equipment Cost

vs. Capacity Economy of scale

One large less costly than many small

Exceptions

Furnace stack - proportional to height

Crushers - larger is more costly


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Six-tenths Rule Guthrie - correlated 59 processes m = 0.38 to 0.9

with average = 0.64

Limitations

Need to know capital costs of one plant of a givencapacity

No allowance for new technology

Advantages

Rapid order of magnitude

Log-log plots of cost vs capacity


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Inflation

Corrective data needed to adjust older datato current or future trends.

Factor:

Ib - index of inflation at a base cost

I- index of inflation

b

m

b I

I

capacity

capacityCost

I

ICostCost

1

2

112


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Indicespg 483-485

Engineering News Recordindex - general

Nelson-Farrar index - petroleum

Marshal and Swift Equipment Cost Index

Published monthly in Chemical Engineering

Chemical Engineering Based on chemical plant equipment

Improvements in productivity accounted for

Engineering costs, materials, manufacturing, andinstallation included

Published monthly in Chemical Engineering


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Capital Investment Costs

Total Capital Investment

One time expense for the design, construction,

and start up of a new plant or a revamp of anexisting plant.

CTCI

Goal of Lecture is to Determine This


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Addition to Existing Plant vs.

Grass Roots Integrated Complex

Add onto existing plant

Add polyethylene production to ethylene productionplant

May need auxiliary facilities

Grass Roots

No other Chemical plants nearby

Need cafeteria, auxiliary facilities etc.

Need to determine if utilities will be purchased orplants built


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Bare Module Equipment Cost,

CBM Cost of installed equipment for integrated

complex or for grass roots

Purchase price is significantly different thanthe installed cost.

Factors to estimate how much it costs to

have an installed piece of equipment basedon the type of equipment

Costs are added to the purchase price, CP

Result is the Bare Module Cost, CBM.


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Determining CBM

Start with Purchase Price, CP Add Direct Expensesequipment specific

CM

material costs (concrete, piping,controllers, electrical, insulation, paint)

CLlabor costs to install

Add Indirect Expenses, CIEFreight, insurance and taxes CFITConstruction overhead CO

Contractor engineering CE


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Example ofCBM


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Determining CBM

Typically determine CFIT, CL, CM, etc asfractions ofCP.

CL = 0.63 CPfor heat exchanger Total CBM(Bare Module Cost)

CBM= FBMCPF

BM

bare module factorTable 16.11

Sum of all of the factors forCFIT, CL, CM, etc

Typical

Method for

ClassUse

FBM


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Estimation of Total Capital

Investment From Bare module cost to total cost

Three methods in text

Hillorder of magnitudeMethod 1

Langbased on type of plantMethod 2

GuthrieWe will useMethod 3


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Lang Factors

Purchase cost * 1.05 * Lang factor

1.05 is for delivery

Lang factor - nature of process

Solids (cement plant) 3.9

Solid and fluid (fertilizer) 4.1

Fluid processing (oil refinery) 4.6


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Components of Total Capital

Investment, CTCI Total bare module, CTBM

CFEtotal bare module fabricated equipment

(heat exchanger, distillation column, vessel)

CPMtotal bare module process machinery

(pumps, compressor, centrifuge)

Csparetotal bare module for sparesCstoragetotal bare modules for storage

Ccatalystcost for initial catalyst


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Other Investment Costs

Usually calculated as fractions ofCTBM Csitecost of site preparation

= (0.10- 0.20) CTBMfor grass roots

= (0.040.06) CTBM

for integrated complex

Cbuildingsprocess buildings= (0.1) CTBMfor housed or inside

Coffsite = Cserv + Calloc

Cserv = (0.05) CTBM for integrated complexCserv = (0.2) CTBMfor grass roots

Calloc- Table 16.12

Sum of all of these is the CDPIDirect permanent

investment (CTBM+ Cbuildings +Coffsite)


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Other Investment Costs cont.

Ccontcontingencies and contractors fee= 0.15 (CDPI)contingency

= 0.03(CDPI)contractor

CTDCtotal depreciable capital = CDPI+ Ccont

Clandcost of land = 0.02(CTDC)

Croyalroyalties for patents= 0.02 (CTDC)

Annual fee of 3% of product sales

Cstartupstartup costs = 0.1(CTDC)

CTPI= CTDC+ Cland+Croyal+Cstartup Total permanentinvestment


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Adjusting CTPIfor Location

Cheaper to build in some places relative to

others

FISFinvestment site factors

Table 16.13 gives investment factors for

different sites (Gulf Coast vs India vs

Midwest)

TPIISFTPI CFC corrected


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Total Capital Investment, CTCI

CWCworking capital

$ invested to get the plant into productive operation

1 month raw materials, extra catalyst

2 month product inventory

10 - 20% fixed capital

CTCI= CTPI+ CWC

Guthrie methodCTCI= CTPI+ CWC= 1.18(CTBM+Csite+Cbuildings+Coffsite) + CWC

Neglects land, royalties, and plant startup

Total Bare Module Cost for onsite CFE +


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Total Bare Module Cost for onsite

equipment

CFE +

CPM

Total Bare Module Cost for Spare Cspare

Total Bare Module Cost for Storage

and Surge Tanks

Cstorage

Total Initial Cost for Catalyst Ccatalys

Total bare module investment, TBM CTBM

Cost of buildings Cbuild

Cost of site preparation Csite

Cost of service facilities Cserv

Allocated cost for utility plants and

related facilities

Calloc

***

Total Direct Permanent invest, DPI CDPI

Contingencies and contractors fee Ccont

Total depreciable capital, TDC CTDC

Cost of land Cland

Cost of royalties Croyal

Cost of plant startup Cstart

Total Permanent investment CTPI

Adjusted Total Permanent

investment

CTPIa

Working Capital CWC

TOTAL CAPITAL INVESTMENT CTCI

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Economics 2 Students