CASH FLOW THROUGH FORMULAS

CF = PAT + DEP

PAT = PBT (1-TR )

PBT = REV - OC - DEP

CF : Cash Flow
DEP : Depreciation
PAT : Profit after Taxes
PBT : Profit before Taxes
REV : Revenue
TR : Tax rate (use 34%)
OC : Operating Costs.

CAPITAL INVESTMENTS

TOTAL CAPITAL INVESTMENT :

TCI = FCI + WC

FCI : Fixed Capital Investment
TCI : Total Capital Investment
WC : Working Capital

FIXED CAPITAL INVESTMENT : Cost of equipment and facilities

FCI = DIRECT COSTS+ INDIRECT COSTS

DIRECT COSTS:

  1. Purchased equipment: Columns, Heat Exchangers, pumps, tanks, etc.
  2. Equipment Installation
  3. Piping (includes insulation)
  4. Instruments and Control
  5. Electrical Equipment.
  6. Buildings: Process, Administration, Maintenance shops, etc.
  7. Site Preparation
  8. Service Facilities: steam, water, air, fuel, etc.), Waste treatment, fire control. Offices, etc.
  9. Land

INDIRECT COSTS:

  1. Engineering and Supervision: Administrative and Design. Supervision and Inspection.
  2. Construction Expenses
  3. Contractor's fee
  4. Contingency.
  5. Start up expenses

WORKING CAPITAL :

Capital needed for the initial operation of the Plant. Raw material and supplies, cash for operating expenses. Typically it is 10-20% of the Total Capital Investment TCI.

TYPES OF COSTS ESTIMATES

TYPE OF ESTIMATE

BASIS

ACCURACY

Order of Magnitude

Extrapolate Similar Plant Cost

30%

Study Estimate

Knowledge of major pieces of equipment

~ 30%

Preliminary Estimate

Based on Basic Engineering and Estimates.

~ 20%

Definitive Estimate

Based on Basic Engineering and quotes from suppliers and contractors.

~ 10%

Detailed Estimate

Based on Detailed Engineering.

~ 5%

In this course we will use Study Estimate as a basis for Flow Sheet Selection and Preliminary Estimates to assess the final cost of the Basic Engineering. It is important you realize what is the margin of error of these estimates.

OPERATING COSTS AND TOTAL PRODUCT COST:

Table 27 (P&T page 210) gives the percentages that need to be used to estimate the TOTAL PRODUCT COST.

When applying these percentages, make sure that the final number makes sense. For example, one million dollars per year for Research and Development for a Cyclohexane process (a proven technology) does not make sense. Labor costs are also troublesome. Use 0% on interest unless the capital is going to be borrowed.

FCI COST CALCULATIONS

PERCENTAGE OF DELIVERED-EQUIPMENT COST METHOD

All costs are calculated using the Equipment Purchase Cost as a basis. I have prepared the following summary Table you can use.

TABLE 4

TABLE 17
(Fluid Processing Plant )

TABLE 26

DIRECT COSTS

Onsite

      

Purchased Equipment

E

E

  

Installation

6-14% FCI

47 % E

22-55 % E

Instrumentation

2-8% FCI

18 % E

6-30 % E

Piping

3-20% FCI

66 % E

10-80 % E

Electrical

2-10% FCI

11 % E

10-40 % E

       

DIRECT COSTS

Offsite

      

Buildings

3-18% FCI

18 % E

10-70 % E

Yard Improvement

2-5% FCI

10 % E

Included in Service Facilities

Service Facilities

8-20% FCI

70 % E

40-100 % E

Land

1-2% FCI

6 % E

1-2 % FCI (or 4-8 %E)

       

INDIRECT COSTS

      

Engineering (ENG)

4-21% FCI

33 % E

5-30 % D

Construction (CONST)

4-16% FCI

41 % E

Included in Contractor's Fee

Contractor's Fee

2-6% FCI

5 % (DIRECT+ENG+CONST)

6-30 % D

Contingency

5-15% FCI

10 % (DIRECT+ENG+CONST)

5-15% FCI

Start-up

8-12% FCI

8-12% FCI

8-12% FCI
       

WORKING CAPITAL

      
 

10-20% FCI

15% TCI

10-20% TCI

GOLDEN RULE OF THUMB FOR EQUIPMENT COSTS:

One better than many, i.e. One unit may be cheaper than two or more units doing the same task. This is explored in a homework problem.

MUST BE DONE PROJECTS:

A MUST BE DONE Project is a project that has no specific revenue or savings identified.
Examples

How do we calculate a Total Annualized cost for these type of Projects? Easy!!

TAC= AFC + OC

TAC : Total Annualized Cost
AFC :Annualized Fixed Cost
OC : Operating Costs

For the time being, consider

AFC=FCI/n

where n is the number of service years expected.

YOU WILL NEED THIS FOR DESIGN LAB: We will cover another formula for this after we cover the time value of money (interest).


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