ECONOMIC F E ASIBILITY
CHAPTER 7 ECONOMIC FEASIBILITY
Butyric acid is widely known for its presence in butter. However, it is consumed mainly in the production of cellulose acetate butyrate (CAB). This is a plastic that is used in many applications such as pen barrels. eyeglass frames and screwdriver handles. Although reccnt reports have shown a decline in CAB usage due 10 competition from other plastics, there has been a growth in alternate uses for butyric acid. These include the produclion of various navorings. fragrances and herbicides.
Furthermore. butyric acid is gaining importance in the pharmaccutical industry. where recent studies (Gillet el a111997]) have shown its need in the form of cancer treatment.
The mam use of isobutyric acid is its conversion to plasticizer. which is used for plastics and lacquers. It is also used to extract mercaptans from petroleum and for conversion (0 esters. which arc llsed in flavors and fragrances.
Figurc 7-1 demonstrates the trends in the U.S consumption figures for butyric and isobutyric acid. 11 is estimated that the U.S constitutes roughly 40Y'c of the international markets for these acids (Bizzilri et al [1999]). The remainder includes exports le countries slIch as Canada. Mexico. Japan, Israel and the Netherlands.
1 "
""
16o
Butyric acid"
"
§ c 14 . Isobutyric acid
"
~Q. E
-
~ § 12"
~ c 0""
c 10 8"
U ~
§ 6
- -
41980 1983 1988 199J 1997
Year
Figure 7~J: U.S consumption figures of the acids for the past ycars
These results show an average growth rate of 1.6 % and 4.6 % per annum for butyric acid and isobutyric acid respectively. Currently butyric acid and isobutyric acid are selling for 55 US cllb (R9, SO/kg)" and 94 US c/lb (R16, 70/kg)" respectively on world markets (Bizarri et .11111999]) .
... COl1cul:Llcd Olssuming R8. 00 to the dollar
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CHAPTER 7 ECONOMIC FEASIBILITY
These products are globally traded. AsslIllling that eighty percent of extractable volumes from the waste acid stream are possible. approximately 3200 tons of butyric acid and 1000 tons isobutyric acid could be produced annually. This will result in producing 13% of world's butyric acid and 2.5% of the world's isobutyric acid requirements. The projected revenue for these productioll figurcs amollm~ (0 approximately R47 million pcr annum.
7 . 2 Capital Cost Evaluation
One of the major costs in determining economic viability is the fixed capital Investment cost. There are Illany different methods, which could determine these costs, all of which depend on the accuracy required by the estimate. Bansel [1990J and Timmerhaus et al [1981] discuss various techniques for estimating capital cOSts. For this particular project the factored estim<lte appro::tch.
with accuracy within 30%, W<lS adopted. This method is based on knowledge of the major items of equipment required for separation and purification of the acids.
Equipment cost ... were determined lIsing published cost data as given by Timrnerhaus et al [1981J. These costs were also calculated using correlations by Mulet et 1.11 l19SI]. Details of equipment costs arc shown in Table C-I of Appendix C with the c'llculated vaiues lying within 10% literature (Timmerhaus al al fI9SI]). Because the costs obtnined from literature were based on monetary value in the year 1979, Equation (7-1) was used to determine current day costs. A total of approximately R 1.524.000 was estimated for equipment costs.
P C
(
index value at present lime (1979)* ) resent ost =
index value at time original cost obtained (2001)* (7· I)
'" Marshall and Swift indices as supplied in Chemical Engineering [1979,2001].
Once equipment costs were determined. the fixed capital investment was calculated using the percentage of delivered equipment cost method as described by Timmerhaus et al fI9SI). This
CHAPTER 7 ECONOMIC FEASIBILITY
OUt.! to the importance of capital COSb in determining process feasibility, a second estimation technique (the Rapid Estimation Technique) was employed. This method suggested by Viola [1981]. claims to be accurate to within 15% when compared 10 the facIored estimate approach. Although the method was not used to determine economic viability. it is suggested to the reader because it requires the least amount of effort and time in determining capital costs. \Vith knowledge of the major unit operations (Distillation and Crystallization), the plant capacity (ID OOOtpa).
materials of construction (Stainless steel) and type of plant (solid-fluid plant) an estimate of R 5.000.000 was obtained. This value compares well against the value obtained by the fnctored estimate approach. It must be noted, however. that the rapid estimation technique has not yet been properly tested.
7.3 Operating Cost Estimation
Operating COSt:- arc those that occur over the iifespan of the project and arc directly associated with production. These costs usually consist of raw material costs. conversion costs (e.g. labour), and indirect cxpcns:=s (e.g. finance charges). For this project raw material costS were not accounted for as the feed to the process is a waste stream that is currently being destroyed by incineration. Details of the operating costs are shown in Table C-3. Appendix C. A total of approximately R 1,700,000 pt.!1" annum was estimated for operating costs.
7.4 Evaluation of Project Profitability
A fundamental objective of any company or business is that it operates profitably [Brennan, 1998].
Before capital is invested in a project. it is necessary to know how much profit can be obtained or whether it might be more advantageous to invest the capital in another form. There are as many ways to access project profitability as there are ways to determine capital costs. Timmerhaus et al [19811. Buasel (19901 and Brennan (1998] discuss these methods in detail. However. in this particular project. it is evidently clear (from the cash flow chart, Table C-4, Appendix C) that the income generated by the project exceeds the expenses and capital im·estment by a huge amount.
This in turn results in high rate of returns and a payback period of it!ss than one year for the investmelll required in implememing the project. It must, however. be noted that other factors such as risks involved in the project would also affect investment decisions. As this project is only in its
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CHAPTER 7 ECONOMIC FEASIBILITY
first phase. most of the risk can be associaled with the author's inexperience in industry and the assumptions taken in the design stages of the project. This however should decrease once pilot pln.nt work on the project has been completed.