X Economic Feasibility Analysis

(1)

Department of Chemical Engineering - UPN “Veteran” Yogyakarta Page 1 of 16

X

Economic Feasibility Analysis

Dr. Eng. Yulius Deddy Hermawan

Department of Chemical Engineering

UPN “Veteran” Yogyakarta

Dr. Eng. Y. D. Hermawan – ChemEng - UPNVY

Outline

1. Fixed Capital

2. Working Capital

3. Manufacturing Cost

4. General Expenses

(2)

X.1.

FIXED CAPITAL

Fixed Capital

1. Purchased equipment

2. Installation

3. Piping

4. Instrumentation

5. Insulation

6. Electrical

7. Building

8. Land and yard improvements

9. Utilities…………+

Physical plant cost

(PPC)

10. Engineering and construction+

Direct plant cost

(DPC)

11. Contractor’s fee

12. Contingency+

(3)

Elements of Direct Fixed Capital (DFC) Cost Estimate

A Total plant direct cost (TPDC) (physical cost)

1. Equipment purchased cost (PC) (bare cost) 1.00 X PC

2. Installation 43% PC; all fluid processing 47% PC 3. Process piping Solid: 10-20% PC

Solid-fluid: 14-43% PC Fluid: 43-86% PC 4. Instrumentation No auto control: 15% PC

Auto control: 30% PC Computer control: 40% PC 5. Insulation Low-temp. plants: 8% PC 6. Electrical Facilities 11% PC

7. Buildings 6-45% PC, fluid processing 15-70% PC, solid processing 8. Yard Improvement 16% PC

9. Auxiliary Facilities Existing: 0%: minor new: 15% Major additions: 15-40% PC

Completely new (grass roots) 40-140%

Σ = TPDC Method of Purchase Cost Factor

Method of Purchase Cost Factor B Total Plant Indirect Cost (TPIC)

10. Engineering 25% TPDC (normal) 11. Construction 30-35% TPDC: small jobs

40% TPDC: high labor jobs

Σ = TPIC

C Total Plant Cost (TPC) TPC = TPDC + TPIC D Direct Fixed Capital

12. Contractor’s fee 5-8% TPC

13. Contingency 5% TPC: established commercial project 10% TPC: process subject to change 20% TPC: speculative process

14. Size Factor contingency should be adjusted as follows X0.80: huge commercial plant

X1.00: standard plant

X1.3: experimental units, pilot plants, small additions

Σ = (12 + 13)

(4)

Purchased Equipment Cost

Cost data are often presented as cost versus capacity charts, or

expressed as a power law of capacity

M

B B

E

C

Q

C















Where

C

_E

= equipment cost with capacity

Q

C

_B

= known base cost for equipment with capacity

Q

_B

M

=

constant depending on equipment type

(5)

Purchased Equipment Cost

Such data can be brought up-to-date and

put on a common basis using cost indexes

2 1 2 1

INDEX

C



Where

C

₁

= Equipment cost in year 1

C

₂

= Equipment cost in year 2

INDEX

₁

= Cost index in year 1

INDEX

₂

= Cost index in year 2

Delivery cost: up to 15% PEC

Cost Index references

:

•

Marshall & Stevens (MS)

•

Nelson refinery

•

Engineering News Record

•

Chem. Eng. Plant (CEP)

PEC + Delivery Cost = Delivered Equipment Cost

Installation Cost (%PEC)

Material Labor Total

Foundations 4 3 7

Platforms & support 7 4 11

Erection of equipment -- 25 25

11 32 43

Piping Cost (%PEC)

Solid 8 6 14

Solid – fluid 21 15 36

Fluid 49 37 86

Instrumentation Cost (%PEC)

Few or no controls 4 1 5

Some specific controls 12 3 15

(6)

Insulation Cost (%PEC)

Insulation cost 3 5 8

Electrical Auxiliaries Cost (%PEC)

Building

(

depend on the location

)

Installed cost of substations, feeder, wiring: 10 – 15 % PEC

Cost in Indonesia (Rp………./m2₎

Land & Yard Improvement

Cost in Indonesia

Utilitie

Estimated agree with designed utility unit (up to installed cost)

Engineering & Construction (%PEC)

Physical Plant Cost ($) E & C (%)

< 1.000.000 30

1.000.000 – 5.000.000 25

>5.000.000 20

Contractor’s fee

4 – 10% Direct Plant Cost (DPC)

Contingency

% DPC

Low 12

Average 15

(7)

X.2.

WORKING CAPITAL

Working Capital

1. Raw material inventory

estimate : 1 month supply at purchased value

2. In process inventory

estimate : 0.5 total manufacturing cost X total hold-up time

3. Product inventory

estimate :1 month production, value at manufacturing cost

4. Extended credit

estimate : 1 month production at sales value, or 2x manufacturing cost

5. Available cash

estimate : 1 month manufacturing cost

Note: monthly manufacturing cost

Estimate: Iw = rm(m+4M+0.5MQ)

(8)

X.3.

MANUFACTURING COST

Manufacturing Cost

1. Raw materials 2. Labor

3. Supervision 4. Maintenance 5. Plant supplies

6. Royalties and patents

7. Utilities +

Direct Manufacturing Cost 8. Payroll overhead

9. Laboratory 10. Plant overhead 11. Packaging

12. Shipping +

Indirect Manufacturing Cost 13. Depreciation

14. Property fixed

(9)

Direct Manufacturing Cost

1. Raw Materials:

• Purchased cost + delivery expenses

• Amortized costs of catalyst

2. Labor:

Related to the production directly _{operator’s total salary average:}

• 5 – 10% MC

• 15 – 20% MC for considerable handling

3. Supervision:

• Simple operations: 10% labor cost

• Complex operations: 25% labor cost

Direct Manufacturing Cost

5. Plant supplies:

Used in normal operation: gaskets, lubricants, charts;

Around 15% of maintenance cost

6. Royalties and patents:

1 – 5% sales price :

7. Utilities:

water, steam, power (electrical), fuel, etc. calculated based on the process

4. Maintenance:

Cost of materials and labor for routine maintenance and incidental repairs:

Annual maintenance

(10)

Indirect Manufacturing Cost

8. Payroll overhead:

Pension, vacation, insurance, social security, 15 – 20% labor cost

9. Laboratory:

Quality control, 10 – 15% labor cost

10. Plant overhead:

health, trip (holiday), ware house, 50 – 100% labor cost

11. Packaging:

Food product 24% sales price Oil product 35% sales price

12. Shipping:

shipping cost

Fixed Manufacturing Cost

13. Depreciation:

as an economic plant

14. Property taxes:

1 – 2% Fixed Capital

15. Insurance:

(11)

Typical labor requirements for process equipment

Type of equipment

Workers/Unit/Shift

Dryer, rotary

1/2

Dryer, spray

1

Dryer, tray

1/2

Centrifugal separator

1/2 – 1/4

Crystallizer, mechanical

1/6

Filter, vacuum

1/8 – 1/4

Evaporator

1/4

Reactor, batch

1

Reactor, continuous

1/2

Steam plant (100,000 lb/h)

3

Scale up of labor cost

Here

N

and

r

refer to the number of operators per shift and

plant capacity, respectively of two plants,

A

and

B

, different in

capacity, but producing the same product. The capacity

exponent is about 0.25

25

.

0















A

B

A

B

r

N

(12)

X.4.

GENERAL EXPENSES

General Expenses

1. Administration

2 – 3%sales or 4 – 6% manufacturing cost

2. Sales: for promotion, 3 – 12% sales

3. Research: 2 – 4% sales

4. Finance:

pay interest (bank) for a loan (part of) Fixed Capital and Working Capital

the amount is = i_F (FC.K_F) + i_w(WC.K_w)

Profit:

Sales ………

Manufacturing cost ………

General expense ………

Total cost ………

Profit before taxes ………

Taxes (up to 52%) ………

Profit after taxes ………

–

(13)

Process Classification

(

in calculation of manufacturing cost

)

1. One main product:

production cost is loaded to a main product

2. Two or more of main products:

production cost is loaded to all main products based on:

•

production quantity,

•

product’s price

3. There is a sold byproduct:

(14)

X.5.

PROFITABILITY

Return on Investment (ROI)



Profit before/after tax



For Minimum ROI Standard, use profit before taxes

%

100

x

Capital

Fixed

Profit



ROI

Types

Low risk

High risk

Industrial chemical

11

44

Petroleum

16

39

Pulp and paper

18

40

Pharmaceutical

24

56

Paints

21

44

(15)

Pay Out Time (POT)

on

Depreciati

Profit

Capital

Fixed





POT



Unit: year



Aries Newton:



Maximum limit:

Profit

Before

Tax

0

.

1

FC

Capital

Fixed





POT

Types

Low risk

High risk

Industrial chemical

5

2

Petroleum

5

2

Pulp and paper

4

2

Pharmaceutical

3

2

Paints

3

2

Fermentation products

3

2

BEP and SDP Calculation

1. Fixed Cost:

 _Depreciation  Taxes

 Insurances

2. Variable cost:

 Raw Materials  Packaging  Utilities  Royalties

3. Regulated cost

(16)

Break Even Point

Production Capacity (%)

0

100

Fixed Cost

Variable Cost

Regular cost

Sales

BEP

SDP

Rp/tahun

or

$/yr

SDP: Shut Down Point