8.

1

CHAPTER VIII



ECONOMIC ANALYSIS



8.0 INTRODUCTION

Economic analysis is a continuation of market analysis which had been done in design
project one. Economic analysis is a process done to determine whether the plant will
give profit or loss to the company by analyzing the strengths and weaknesses of the
economy.


8.1 CAPITAL COST ESTIMATION

Capital costs are the total cost needed to build a plant. Capital cost are fixed and it is
not depends on the level of output. The cost other than the purchased cost of
equipment must take into consideration in order to calculate the capital cost. Table 8.1
show the factors that affecting the cost associated with evaluation of capital cost of
chemical plants.

Estimation of capital cost can be classified into three types according to their accuracy
and purpose:
8.2

Table 8.1: Factors affecting the cost associated with evaluation of capital cost of chemical plants
Factor Associated With The
Installation Of Equipment
Symbol Comments
1. Direct project expenses
(a) Equipment f.o.b. cost
(f.o.b.= free on board)
C
p
Purchased cost of equipment at manufacturer's site
(b) Material required for
Installation
C
M
Includes all piping, insulation and fireproofing, foundation and structural support,
instrumentation and electrical, and painting associated with equipment
(c) Labor to install equipment
and material
C
L
Includes all labor associated with installing the equipment and material mentioned in
(a) and (b)
2. Indirect project expenses
(a) Freight, insurance and taxes C
PI1
Includes all transportation cost for shipping equipment and materials to the plant
site, all insurance on the items shipped, and any purchase taxes that may be
applicable
(b) Construction overhead C
0
Includes all fringe benefit such as vacation, sick leave retirement benefit, etc.; and
salaries and overhead for supervisory personnel
(c) contractor engineering
expenses

C
L
Includes salaries and overhead for the engineering, drafting, and project
management personnel on the project
3. Contingency and fee
8.3

(a) Contingency C
Cont
A factor to cover unforeseen circumstances. These may include loss of time due to
storms and strikes, small changes in the design, and unpredicted price increases.
(b) Contractor fee C
Pcc
This fee varies depending on the type of plant and a verity of other factors
4. Auxiliary facilities
(a) Site development C
Stc
Includes the purchase of land, grading and excavation of the site; installation and
hook-up of electrical, water and sewer systems; and construction of all internal
roads, walkways, and parking lots
(b) Auxiliary buildings C
Aux
Includes administration offices, maintenance shop and control rooms, warehouses,
and service buildings (e.g., cafeteria, dressing rooms, and medical facility)
(c) Off-sites and utilities C
0]]



Includes raw material and final product storage; raw material and final product
loading and unloading facilities; all equipment necessary to supply required process
utilities (e.g., cooling water, steam generation, fuel distribution systems, etc.); central
environmental control facilities (e.g., waste water treatment, incinerators, flares,
etc.); and fire protection systems
(Source:Turton,2003)
8.4

Preliminary ( approximate) estimates
Authorization (budgeting) estimates
Detailed ( quotation) estimates

There are a few techniques in estimating the cost of a new chemical plant. There are:

1. Lang factor technique
Lang factor technique is a simple technique to estimate the capital cost. The
total cost is calculated by multiplying the total purchased cost for all major items of
equipment by a constant, which is called the Lang Factor. Values for Lang Factors,
F
Lang
are given in Table 8.2 below.

Table 8.2: Lang Factors for the Lang factor technique
Type of chemical plant Lang Factor= F
Lang
Fluid processing plant 4.74
Solid-fluid processing plant 3.63
Solid processing plant 3.10
( Source: Turton, 2003)

The capital cost calculation is calculated using Equation 9.1 below

C
1M
= F
Lung
C
p,
n
=1
(8.1)

Where
C
1M
= the capital cost (total module) of the plant
F
Lung
= the purchased cost for the major equipment units
N = the total number of individuals unit
C
p,
= the Lang factor

This technique is insensitive to changes in process. It cannot accurately account for the
common problems of special materials of construction and high operating pressure.




8.5

2. Module costing technique

The equipment module costing technique is a common technique to estimate the cost
of a new chemical plant. This approach, introduced by Guthrie, (1969) in the late 1960s
and early 1970s, forms the basis of many of the equipment module techniques in use
today. This costing technique relates all costs back to the purchased cost of equipment
evaluated for some base conditions.

Deviations from these base conditions are handled by using multiplying factors that
depend on the following:

The specific equipment type
The system pressure
The specific materials of construction

Equation 8.2 below used to calculate the bare module cost for all equipment. The bare
module cost is the sum of the direct and indirect cost shown in Table 8.3.

C
BM
= F
BM
C
p
(8.2)

Where
C
BM
= bare module equipment cost which are direct and indirect
cost
F
BM
= bare module cost factor
C
p
= purchased cost for base condition
8.6

Table 8.3: Summary of equation used in estimating equipment cost
Purpose Formulae Equation
Purchased equipment cost, C
p
o
l og
10
C
p
o
= K
1
+ K
2
l og
10
A + K
3
[ l og
10
A]
2
8.3
Pressure factor, F
p
for process
vessel F
p,csscI
=
( P + 1)
2 [ 8 50 0.6( P + 1) ]
+ 0 .00315
0.0 063

8.4
Pressure factor, F
p
for other
process equipment
l og
10
F
p
= C
1
+ C
2
l og
10
P + C
3
[ l og
10
P]
2
8.5
Bare module and material
factor for heat exchangers,
process vessels and pumps
C
BM
= C
p
o
F
BM
= C
p
o
(B
1
+ B
2
F
M
F
p
) 8.6
(Source: Turton, 2003)

8.1.1 Steps for Calculating Bare Module Costs

Figure 8.1: Step to estimate bare module cost for equipment (Source: Turton,2003)
8.7

8.1.2 Cost of Equipment

The cost of major equipment such as reactor, distillation column separator and heat
exchanger are calculated to estimates the cost of piping and insulation. From Figure
9.1, the equipment use in this plant can be concluded as in Table 8.4 below:

Table 8.4: Total equipment used in plant
Items Quantity
1 Storage tank 7
2 Heater 3
3 cooler 4
4 Mixer 4
5 Reactor 2
6 Separator 2
7 Heat exchanger 1
8 Distillation column 2
9 Compressor 1
Total 26
(Source : Tourton,2003)

8.1.2.1 Cost of Reactor

The purchased cost of separator at ambient operating pressure using any kind of
material for construction, C
p
o
is calculated using C
p
o
/ I versus V graph. The volume of
reactor made from carbon steel is calculated by substituting value in Table 8.5 into
Equation 8.7 below;

A =
n
2
L
4
(8.7)

Table 8.5: Purchased cost, C
p
u
of the reactor
Reactor Height Diameter Total volume C
p
o
/A C
p
o

Hydroformylation reactor 4m 5m 42 840 35280
Hydrogenation reactor 5m 4m 42 840 35280

From the graph of C
p
o
/ I versus V, the C
p
o
for both reactor as stated in Table 8.5 above.
The bare pressure factor, F
P
for reactor with thickness less than 0.0063 m is found to be
1. The bare module factor, F
BM
for reactor is found to be 4. Thus, C
BM
for
hydroformylation and hydrogenation reactor is calculated using Equation 8.6;
8.8

C
BM
( rcoctor) = C
p
o
F
BM

= 3 528 0x 4
= $141120

This is the bare module cost for 2001 (CEPCI=397). The cost for 2010 can thus be
calculated by using Equation 9.8 as follows using the CEPCI of 525. (Chemical
Engineering Design, 2008)

C
2
= C
1
[
I
2
I
1
(8.8)

For reactor,
Cost in 20 10 = Cost in 2001 x
Cost inJcx in 20 10
Cost inJcx 2001

= 14 112 0 x
525
397

= $186619.6 0
= RM 565,514.10

For three hydrogenation reactor = RM 565,514.10 x 3 = RM 1,696,542.24
Total cost for purchasing reactors =RM 565,514.10 + RM 1,696,542.24
=RM 2,262,056.33

8.1.2.2 Cost of Separator

The purchased cost of separator at ambient operating pressure using any kind of
material for construction, C
p
o
is calculated using Equation 8.3. The constant value of K
1 ,
K
2,
K
3
are 3.4974, 0.4485 and 0.1074 respectively. Meanwhile, the capacity, A of the
separator is in terms of volume, m
3
. Thus A is calculated using Equation 8.7 as below:

A =
n( 1m)
2
( 9.95m)
4
= 7 .8 2m
3


8.9

Therefore, C
p
is calculated by using Equation 8.3 that gives the total of $9631.38.

The bare module factor, F
BM
for demister pad made from nickel alloy gives identification
number as 65 (Turton, 2003) and the factor is found to be 5.3. The bare module cost
then calculated as below;

C
BM
= ( $9631.38) ( 5.3 ) = $ 51 04 6.31

Bare Module Cost, C
BM
obtained above was from the analysis made during the period
of May to September 2001 with an average value of the CEPCI, I
1
of 397 (Turton,
2003). CEPCI, I
2
is obtained from the Appendix A (Figure A.2) where I
2
is 520.
Therefore, cost of separator in 2011 is calculated using Equation 8.8:

C
2
= ( $51 0 46.31) _
52 0
39 7
] = $6 6 861.6 7
= RM 202,611.1

8.1.2.3 Cost of Heat Exchanger

The costing of a shell and tube heat exchanger, with floating head type, heat transfer
area of 24.10 m
2
, pressure of 81 bars and having carbon steel as material of
construction using the algorithm outlined in Figure 8.1.

The cost curve for this heat exchanger is shown in Figure 8.2 below. Referring to the
evaluation path shown in Figure 8.3,

C
p
o
( 20 01) =
C
p
o
A
x A
=
$650
m
2
x2 4.1 m
2

= $15,665


8.10


Figure 8.2: Purchased cost for heat exchanger

The bare module cost, C
BM
for shell and tube heat exchanger is given in Equation 8.6.
The B constant value is as shown in Table 8.6.

Table 8.6: Constants for bare module factor for heat exchanger
Equipment
Type
Equipment Description B
1
B
2
Heat
exchanger
Fixed tube sheet, floating head, U-tube,
bayonet, kettle reboiler, and Teflon tube
1.63 1.66
(Source: Turton, 2003)

The pressure factor is obtained from Equation 8.4. Inserting the three constants shown
in Table 9.7 and P = 80 barg (81 bar)
l og
10
F
p
= 0 .03881 0.112 72 l og
10
8 1 + 0 .0 8183[ l og
10
81]
2

l og
10
F
p
= 0 .1218
F
p
= 1 .32

The value of F
M
can be found from Figure 8.3 by using identification number of one. The
details for identification number of one as shown in Table 8.8.
C
p
0
/
A

2
A
8.11




Figure 8.3: Material factor

From Figure 8.3, the material factor, F
M
is 1. This is the case since at base conditions,
(material of construction is carbon steel and operating near atmospheric pressure) the
value of F
M
and also F
P
are always unity.

Substituting the data into Equation 8.6;

C
BM
( 2001) = C
p
o
F
BM
= C
p
o
(B
1
+ B
2
F
M
F
p
)
= 30488 x ( 1.63 + 1.66 x 1 x 1.08)
= $104,354

This is the bare module cost for 2001 (CEPCI=397). The cost for 2010 can thus be
calculated as follows using the CEPCI of 525. (Chemical Engineering Design, 2008)
M
a
t
e
r
i
a
l

f
a
c
t
o
r
,

Identification
8.12

Table 8.7: Pressure factor for heat exchanger
Equipment
Type
Equipment Description C
1
C
2
C
3
Pressure
Range
(barg)
Heat
exchanger
bayonet, fixed tube sheet,
floating head, kettle reboiler, U-
tube (both shell and tube)
0.03881 -0.11272 0.08183 5<P<140
(Source: Turton, 2003)


Table 8.8: Identification number for material factor for heat exchanger
identification
number
Equipment Type Equipment Description
Material of
construction
1 Heat exchanger
Double pipe, multiple pipe, fixed
tube sheet, floating head
CS-shell/CS-tube
(Source: Turton, 2003)
8.13

Cost in 20 10 = Cost in 20 01 x
Cost inJcx in 20 10
Cost inJcx 2001

= 10 4354 x
525
397

= $138000
= RM 418,181.80

8.1.2.4 Cost of distillation column

For distillation column, the C
p
o
value is obtained by using C
p
o
/ I versus V graph. The
volume of distillation column is calculated as below;

Height = 15.056 m ; Diameter = 1.3728 m ;
Material of Construction: Carbon steel.
By using the value of height and diameter above, the volume of column is calculated as:

h r V
2

056 . 15 3728 . 1
2


3
14 . 89 m


From Figure H.1 (appendix), the C
p
o
/ I obtained is 800.
Thus, 800
0

V
C
p

14 . 89 650
0

p
C

0
p
C = $57941

The pressure factors for process vessels,F
p
is calculated by using equation 8.4 as
expressed below.

F
p


0063 . 0
00315 . 0
) 1 2 . 1 ( 6 . 0 850 2
3728 . 1 ) 1 2 . 1 (

= 0.78
8.14

The bare module cost, C
BM
for distillation column is given in Equation 8.6. The B
constant value is as shown in Table 8.9 below.

Table 8.9: Constants for bare module factor for distillation column
Equipment Type B
1
B
2
Distillation column 2.25 1.0
(Source: Turton et al, 2003)

Substituting in Equation 8.6, thus;

F
BM
= B
1
+ B
2
F
P
F
M
= 2.25 + (1.82) (0.78) (1.0)
= 3.67

Bare Module Cost, C
BM
;

C
BM
=
0
p
C F
BM

= 57941 (3.67)
= $ 212643.50
This is the bare module cost for 2001 (CEPCI=397). The cost for 2010 can thus be
calculated as follows using the CEPCI of 521.9. (Chemical Engineering Design, 2008)

New C
BM
=
397
9 . 521
212643.5
= $ 279543.20
= RM 847,101.50

The purchased cost of vessel internal at ambient operating pressure using any kind of
material for construction C
p
o
is calculated using Equation 8.3. The constant value of K
1 ,
K
2,
K
3
are 2.9949, 0.4465 and 0.3961 respectively. So, the C
p
o
is;

8.15

D = 1.3728 m; A = 1.50 m
2
; Number of trays = 25 trays
Material of construction = Carbon Steel


2
10 3 10 2 1
0
10
) ( log ) ( log log A K A K K C
p


2
10 10
) 50 . 1 ( log 3961 . 0 ) 50 . 1 ( log 4465 . 0 9949 . 2

= 1218.45

Formula for Sieve Tray:
From Table A.5, Material and Quantity Factors for Sieve Trays


q BM p BM
F NF C C
0

Where,
N = the number of tray
F
q
= the quantity factor for trays

For tray >20,
F
q
= 1.00

Thus, bare module cost is calculated as below;


q BM p BM
F NF C C
0

00 . 1 67 . 3 25 45 . 1218
= $ 111792.79
= RM 335378.36

This is the bare module cost for 2001 (CEPCI=397). The cost for 2010 can thus be
calculated as follows using the CEPCI of 521.9. (Chemical Engineering Design, 2008)
New C
BM
=
397
9 . 521
36 . 335378
= RM 440891.60

8.16

Total Costing for Distillation Column = RM 838629.60 + RM 440891.60
= RM 1279521.20

Assuming the distillation column 1 is the same properties with the distillation column
2.Therefore, Total Costing for Distillation Column 3 and 4 is = RM 1279521.20x 2
= RM 2559042.40

The bare module cost for all equipments are concluded in Table 8.10 below. Almost all
of the equipments are made from carbon steel since the components involve in this
plant are not reactive towards carbon steel.

Table 8.10: Summary on bare module cost for equipment used in 1-propanol production
plant
Equipment
Material of
Construction
Bare module
cost at non-base
conditions,
C
BM
(RM)
Bare module
cost at base
conditions,
C
BM
u
(RM)
Compressor
Compressor (K-100) Carbon steel
3,719,731.02 2,812,824.45
Heat Exchanger
Heat Exchanger(E-105) Carbon steel 418,140 316,192.62
Fired-Heater
Fired-Heater (E-100) Carbon steel
720,794.58 545,057.91
Fired-Heater(E-101) Carbon steel
994,515.08 752,042.91
Fired-Heater(E102) Carbon steel
964,742.601 729,529.10
Cooler
Cooler (E-103) Carbon steel
602,959.70 455,952.40
Cooler (E-104) Carbon steel
610,575.30 461,711.16
Cooler (E-106) Carbon steel
590,093.41 446,222.98
Cooler (E107) Carbon steel
602,959.70 455,952.40
Reactor
Reactor (PFR-100) Carbon steel
565,514.10 427,593.60
Reactor (CRV-100) Carbon steel
1,696,542.25 1,282,780.80
Storage Tank
8.17

Storage Tank (Tk-101) Carbon steel
172,628.07 130,539.70
Storage Tank (Tk-102) Carbon steel 201,651.47 152,486.93
Storage Tank (Tk-103) Carbon steel 201,651.47 152,486.93
Storage Tank (Tk-104) Carbon steel 187,677.17 141,919.69
Storage Tank (Tk-105) Carbon steel 172,628.07 130,539.70
Storage Tank(Tk-106) Carbon steel 187,677.17 141,919.69
Storage Tank(Tk-107) Carbon steel 82,682.06 62,523.38
Separator
Vessel (V-101) Carbon steel
202,590.86 154,670.32
Vessel (V-102) Carbon steel
213082.08 161,130.64
Mixer
Mixer (Mix-100) Carbon steel
3,455.49 2,613.01
Mixer (Mix-101) Carbon steel
6,274.97 4,745.07
Mixer (Mix-103) Carbon steel
1,521.99 1,150.92
Mixer (Mix-104) Carbon steel
1,004.18 759.35
Distillation Column
DC (T-100) Carbon steel
10,253,895.70 7,753,898.47
DC(T-101) Carbon steel
9,409,710.45 7,115,533.83
Waste treatment Cast steel
62,523.44 82,379.03
Totals
32,847,222.38 24,875,157


8.1.3 Grass roots and total module cost

According to Turton et al, (2003), the term grass roots refers to a completely new facility
in which we start the construction on essentially undeveloped land, a grass field. The
term total module cost refers to the cost of making small to moderate expansions or
alterations to an existing facility. It is necessary to account for other costs in addition to
the direct and indirect costs (item 1 and 2 respectively) which are equivalent to bare
module cost costs to estimate these costs. These additional costs are contingency and
fee costs as well as auxiliary facilities costs as shown in Table 8.1 (item 3 and 4
respectively).
8.18

The total module cost can be evaluated from the following formula

C
1M
= C
1M,
n
=1
= 1.18 C
BM,
n
=1
(8.9)

and the grass roots cost can be evaluated from

C
uR
= C
1M
+ 0.5 C
BM
o n
=1
(8.10)

Where n is represents the total number of pieces of equipments. Inserting the values
into the equations above equations gives the following

C
1M
= 1 .1 8 C
BM,
n
=1

= 1 .18 x ( 3 2,847,222,3 8)
= RH38,75 9,722 .41

C
uR
= C
1M
+ 0.5 C
BM
o
n
=1

= 3 8,75 9,722.4 1 + 0.5 x ( 24,875 ,157.00)
= RH 5 1,197,3 00.9 1


8.2 ESTIMATION OF MANUFACTURING COSTS

The cost associated with the day-to-day operation of a chemical plant must be
estimated before economic feasibility of a proposed process can be assessed. There
are many elements that influence the manufacturing cost. A list of important costs
involved, including a brief explanation of each cost, is given in Table 8.11. The cost
information provided in the table is divided into three categories.

8.19

Table 8.11: Factors affecting the cost of manufacturing(COM)
FACTOR DESCRIPTION OF FACTOR
1. Direct costs Factor that vary with the rate of production
A. Raw materials
(C
RM
)
Cost of chemical feed stocks required by the process.
Flow rates obtained from the PFD
B. Waste treatment
(C
WT
)
Costs of waste treatment to protect environment
C. Utilities (C
UT
) Costs of utility streams required by process. Includes
but not limited to

a. Fuel gas, oil, and/ or coal

b. Electric power

c. Steam (all pressures)

d. Cooling water

e. Process water

f. Boiler feed water

g. Instrument air

h. Inert gas (nitrogen) etc.

i. Refrigeration
Flow rates for utilities found on the PFD/PIDs
D. Operating labor
(C
OL
)
Costs of personnel required for plant operations
E. Direct supervisory
and clerical labor
Cost of administrative/ engineering and support
personnel.
F. Maintenance and
repairs
Costs of labor and material associated with the
maintenance
G. Operating supplies Costs of miscellaneous supplies that support daily
operation not considered to be raw materials. Example
include chart paper, lubricants, miscellaneous
chemical, filters, respirators and protective clothing for
operators, etc.
H. laboratory charges Costs of routine and special laboratory test required for
product quality control and troubleshooting.
I. Patents and
royalties
Cost of using patented or licensed technology.
8.20

2. Fixed cost
Factors not affected by the level of production

A. Depreciation Costs of associated with physical plant (buildings,
equipment, etc.). Legal operating expense for tax
purposes.
B. Local taxes and
insurance
Costs associated with property taxes and liability
insurance. Based on plant location and severity of the
process.
C. Plant overhead
cost (sometimes referred
to as factory expenses)
Catch-all costs associated with operations of auxiliary
facilities supporting the manufacturing process. Costs
involve payroll and accounting services, fire protection
and safety services, medical services, cafeteria and
any recreation facilities, payroll overhead and
employee benefits, general engineering, etc.
3. General expenses
Costs associated with management level and
administrative activities not directly related to the
manufacturing process
A. Administration
costs
Costs of administration. Includes salaries, other
administration, buildings, and other related activities.
B. Distribution and
selling costs
Costs of sales and marketing required to sell chemical
products. Includes salaries and other miscellaneous
costs.
C. Research and
development
Costs of research activities related to the process and
product. Includes salaries and funds to research-
related equipment and supplies, etc.
(Source : Turton)

I) Direct manufacturing cost

These costs represent operating expenses that vary with production rate. When product
demand drops, production rate is reduced below the design capacity. At this lower rate,
we would expect a reduction in the factors making up the direct manufacturing costs.
These reductions may be directly proportional to the production rate, for example, raw
8.21

material, or might be reduced slightly, for example, maintenance costs or operating
labor.

II) Fixed manufacturing cost

These are independent of changes in production rate. They include property taxes,
insurance, and depreciation, which are changed at constant rates even when the plant
is not in operation.

III) General expenses

These costs represent an overhead burden that is necessary to carry out business
functions. They include management, sales, financing, and research functions. General
expenses seldom vary with production level. However, items such as research and
development and distribution and selling cost may decrease if extended periods of low
production levels occur.

The cost of manufacturing, COM can be estimated when the following costs are known.

I) Fixed capital investment, (FCI):(C
GR
)
II) Cost of operating labor (C
OL
)
III) Cost of raw material (C
RM
)
IV) Cost of utilities (C
UT
)
V) Cost of waste treatment (C
WT
)


8.2.1 Estimation of Operating Labour Cost

The technique used to estimate operating labor requirements is based on data obtained
from five chemical companies and correlated by Alkayat and Gerrard. According to this
method, the operating labor requirement for chemical processing plants is given by

N
0L
= |6.29 + 3 1.7P
2
+ 0.23 N
np
]
0.5
(8.11)

8.22

where N
0L
is the number of operators per shift, P is the number of processing steps
involving the handling of particulate solids, for example, transportation and distribution,
particulate size control, and particulate removal. N
np
is the number of nonparticulate
processing steps handling and includes compression, heating and cooling, mixing and
reaction. In general, value of P is zero and the value of N
np
is given by

N
np
= Equipmcnt (8.12)

Where the equipment is refers to compressors, towers, reactors, heaters/furnace and
exchangers. The value of N
0L
is the number of operators required to run the process
unit per shift. A single operator works on the average 49 weeks (3 weeks off for
vacation and sick leave) a year, five 8-hour shifts a week. This amounts leads to

49 wccks
ycor
x
5 sit
wcck. opcrotor
=
24 5 sits
ycor. opcrotor


A chemical plant normally operates 24 hours/day and this requires

365 Joys
ycor
x
3 sits
Joy
=
10 95 sits
ycor


The number of operators needed to provide this number of shifts is

109 5 sits
ycor
x
ycor. opcrotor
2 45 sits
= 4.5 opcrotors

Using Equation 8.11 and information in Table 8.12;

N
0L
= |6.29 + 3 1.7P
2
+ 0 .2 3N
np
]
0.5

= [ 6.29 + 0 + 0 .2 3x7]
0.5

= 2.81



8.23

Table 8.12: Results for the estimation of operating labor
Equipment type Number of Equipment N
np

1) Compressors 1 1
2) Exchangers 1 1
3) Heaters 3 3
4) Reactors 2 2
5) Vessels 3 -
TOTAL 7
Note : Pumps and Vessels are not counted in evaluating N
np
.

From calculation above, the number of operators required per shift is 2.81. So,
Operating labor = 4.5x2 .81 = 1 2.65 (rounding up to the nearest integer yields 13
operators)

To estimate the cost of operating labor, the hourly wage of an operator is required.
Chemical plant operators are relatively highly paid. The hourly rate for miscellaneous
plant and operators is RM20 (Department of Human Resource). Therefore

8 ours
Joy
x
RH2 0
Eours
x
344 Joy
ycor
= RH 55,040

Iobour cost is = 13 x RH 55 ,040
=
RH71 5,520
ycor
( or 200 1)
Cost or 201 0 = 715,5 20x
5 25
3 97

= RH 9 46,21 6.62

8.2.2 Cost of Raw Material

The production of 1-Propanol is to reach 100,000 metric tonne per year. The costs of
raw material needed for this production rate are shown in Table 8.13 below. From Table
8.13, the total raw material cost is RM 19,596,816.43.

8.24

Table 8.13: Raw Material Cost
Raw Materials Amount (kg/hr) Cost (RM/kg) RM/hr(x1000)
Ethylene 6805

1.50 10,207.50
Hydrogen 3338 1.00 3338
Carbon monoxide 30565 1.50 10,188.33
Catalyst 48157.2 455 21,911,526
Total 19,596,816.43
(Source : www.titangroup.com,www.mox.cokayom.my)

8.2.3 Cost of Utilities

This term includes steam (high pressure, medium pressure, low pressure), cooling and
process water, electricity, boiler feed water and effluent treatment.

Table 8.14: Cost of utilities
Utilities Price (RM/unit) Amount RM/year
Steam 1.00/kg

26.32 kg/h 217,197.92
Cooling water 0.05/kg

341.85kg/hr

141,115.68
Electricity 0.087/kWh

53kWh 38,068.42
Total 394,382.02
(Source: Encyclopedia of Chemical Processing and Design)

8.2.4 Cost of Waste Treatment

The cost of waste treatment is calculated and concluded in Table 8.15 below.

Table 8.15: Waste treatment Cost
Item Price (RM/unit) Amount RM/year
Waste 2.42/m
3
0.14 m
3
/h 2,742.02
Total 2,742.02
(Source: Fogler)
8.25

8.2.5 Calculation of Manufacturing Cost

The cost of manufacturing with and without depreciation can be obtained using the
formulae given by Turton, (2003)

C0H = 0 .2 80FCI + 2.73C
0L
+ 1 .2 3( C
01
+ C
w1
+ C
RM
) (8.13)

and

C0H
d
= 0.180 FCI + 2 .7 3C
0L
+ 1.23( C
01
+ C
w1
+ C
RM
) (8.14)

where COM and COM
d
are cost of manufacturing with and without depreciation
respectively. Other symbols are the same as encountered before. Using the value of
fixed capital investment (FCI which is equivalent to C
GR
) estimated in section 8.2.2, the
production cost for 1-propanol can be calculated as follows

C0H = 0 .2 80FCI + 2.73C
0L
+ 1 .2 3( C
01
+ C
w1
+ C
RM
)
= 0.2 80( 51,19 7,300 .9 1) + 2.7 3( 946,216.62)
+ 1 .2 3( 394,382.02 + 2,74 2.02 + 19 ,5 96,81 6.43)
= 41 ,510,9 62.41
RH4 2 x
10
6
yr


And

C0H
d
= 0.1 80FCI + 2.73C
0L
+ 1.2 3( C
01
+ C
w1
+ C
RM
)
= 0 .180( 51 ,197,300.91) + 2 .73( 946,2 16.62) + 1.23( 39 4,382 .0 2 + 2,742.0 2 +
19 ,5 96,816.43)
= 36,391,232.31
RH37x
10
6

The direct (variable) and fixed manufacturing costs can be evaluated as follows
Iorioblc Cost ( IC) = C
RM
+ C
w1
+ C
01
+ 1.33 C
0L
+ 0 .0 69FCI + 0.03 C0H
8.26

= 1 9,596,8 16.43 + 2 ,7 42.02 + 3 94,38 2.02 + 1.33( 946,2 16.6 2) + 0.069( 51,197,300.91)
+ 0 .0 3( 41 ,510,9 62.41 )
= RH 26 ,0 30,35 1.21

And

FixcJ Cost ( FC) = 0.7 08C
0L
+ 0.168FCI
= 0.7 08( 946,2 16.62 ) + 0.16 8( 5 1,197 ,300.9 1)
= RH 9,27 1,067 .92


8.3 TOTAL REVENUE

SELLING PRICE FOR N-PROPANOL

The price for 1 kg n-propanol is RM4.40 (Matrade). So, the total revenue for production
of 95,836,944kg of n-propanol and carbon monoxide and propanal are RM
567,405,823.50 as shown in Table 8.16.


Table 8.16: Total revenue
Selling Item Selling Price (RM/Kg) Production Rate (kg/ hr) Income (RM/year)
n-Propanol 4.40 11642.00 422,911,948.80
CO 1.30 39.36 410,162.69
Propanal 2.50 6980.80 144,083,712
Total (RM/yr) 18662.16 567,405,823.50
(Source:Matrade)


8.4 PROFITABILITY ANALYSIS

According to Turton (2003), in the economic analysis of a project, it is assumed that any
new land purchases required are done at the start of the project, that is, at time zero.
After the decision has been made to build a new chemical plant, the construction phase
of the projects starts. Depending on the size and scope of the project, this construction
may take anywhere from six months to three years to complete.
8.27


In this plant, it is assumed that it takes a typical value of two years for time from project
initiation to the start-up of the plant. Over the two-year construction phase, there is a
major capital outlay. This represents the fixed capital investment for purchasing and
installing the equipment and auxiliary facilities required to run the plant. The distribution
of this fixed capital investment is usually larger towards the beginning of construction.
At the end of second year, construction has finished and the plant is started up. At this
point, the additional expenditure for working capital is required to float the first few
months of operations. This is a one-time expense at the start-up of the plant and will be
recovered at the end of the project.

After start-up, the process begins to generate finished products for sale, and yearly
cash flows become positive. The cash flows for early years of operation are larger than
those for later years due to the effect of depreciation. The time for depreciation used in
this plant is six years. The method of depreciation used is based on Modified
Accelerated Cost Recovery System (MACRS). Under this method, all equipment is
assigned a class life, which is the period over which the depreciable portion of the
investment may be discounted. Most equipment in a chemical plant has a class life of
9.5 years. The MACRS method uses a double declining balance method and switches
to a straight line method when straight line method yields a greater depreciation
allowance for the year. The Table 8.17 is the depreciation allowance using MACRS
method.

In order to evaluate the profitability of a project, a life of a project must be assumed.
This is not the working life of the equipment nor is it the time over which depreciation is
allowed. It is a specific length over which the profitability of different projects is to be
compared. Lives of 10, 12 and 15 years are commonly used for this purpose. In this
plant, a project life of 10 years is assumed.





8.28

Table 8.17: Depreciation schedule for MACRS method for equipment with a 9.5 year
class life
Year Depreciation allowance (% of capital investment)
1 20.00
2 32.00
3 19.20
4 11.52
5 11.52
6 5.76
(Source: Analysis, Synthesis and Design of Chemical Process, 2003)


8.4.1 Estimation of Land Cost

The non-discounted techniques do not take into account the time value of money and
are not recommended for evaluating new large projects. Figure 9.6 below shows the
graph of cumulative cash flow for non-discounted after tax cash flow based on
information in Table 9.19. The taxation rate, t used is 45% since the rate is often in the
range of 40% to 50% according to Turton, (2003).


8.4.2 Nondiscounted After-Tax Cash Flow

Cost of land: RM 129.17 RM 139.93 per meter square

Wide of land required: 121,532 m
2
according to Dairen Chemical Company in Johor

Total cost of land: RM 139.93 x 121532 m
2
= RM 17,005,972.76.





8.29

8.4.3 Discounted After-Tax Cash Flow

For discounted criteria, we discount each of the yearly cash flows back to time zero.
The following tables show the discounted cash flow from 10% to 16% p.a. All the value
is in unit of $10
6


Figure 8.4: Cumulative cash flow diagram for nondiscounted after-tax cash flow

-100
-50
0
50
100
150
0 2 4 6 8 10 12 14 16 18 20
C
a
s
h

(
R
M
1
0
6
)
Time ( year s)
cumul at i ve cash posi t i on
FCI
L
FC
L
Land
Land
+
WC
payback per i od
8.30

Table 8.18: Nondiscounted after-tax cash flows
End of
year (k)
Investment J
k
FCI
L
- d
k
R C0H
d
(R-COM
d
-d
k
)x(1-t) +d
k
Cash flow Cumulative Cash flow
0 17 - 51 - - - -17 -17
1 34 - 51 - - - -34 -51
2 27.2 - 51 - - - -9 -78.2
3 - 10.2 40.8 56 39 1.3 1.3 -76.9
4 - 16.32 24.48 56 39 12.58 12.58 -64.32
5 - 9.792 14.688 56 39 10.948 10.948 -53.372
6 - 5.8752 8.8128 56 39 9.9688 9.9688 -43.4032
7 - 5.8752 2.9376 56 39 12.9064 12.9064 -30.4968
8 - 2.9376 0 56 39 11.4376 11.4376 -19.0592
9 - - 0 56 39 8.5 8.5 -10.5592
10 - - 0 56 39 8.5 8.5 -2.0592
11 - - 0 56 39 8.5 8.5 6.4408
12 - - 0 56 39 8.5 8.5 14.9408
13 - - 0 56 39 8.5 8.5 23.4408
8.31

14
- - 0 56 39 8.5 8.5 31.9408
15
- - 0 56 39 8.5 8.5 40.4408
16
- - 0 56 39 8.5 8.5 48.9408
17
- - 0 56 39 8.5 8.5 57.4408
18
- - 0 66 39 8.5 8.5 65.9408
19
27.2 - 0 66 39 13.5 40.7 106.6408
All of the values are in RMmillion


Cost of land = RM17 million

Total fixed capital investment, FCIL = RM51 million

Plant start-up at end of year2

Taxation rate =26% (MIDA)

Salvage value of plant = RM 1 million

Assume a project life of 17 years
8.32

Table 8.19: Discounted cash flow for discount rate = 7% p.a
End of
year (k)
Non-discounted
cash flow
Discounted cash
flow
Cumulative Discounted
cash flow
0 -17 -17 -17
1 -34 -31.7757 -48.7757
2 -27.2 -23.7575 -72.5332
3 1.3 1.061187 -71.472
4 12.58 9.597222 -61.8748
5 10.948 7.805773 -54.0691
6 9.9688 6.642632 -47.4264
7 12.9064 8.037457 -39.389
8 11.4376 6.656787 -32.7322
9 8.5 4.623437 -28.1087
10 8.5 4.320969 -23.7878
11 8.5 4.038289 -19.7495
12 8.5 3.774102 -15.9754
13 8.5 3.527198 -12.4482
14 8.5 3.296447 -9.15174
15 8.5 3.080791 -6.07094
16 8.5 2.879244 -3.1917
17 8.5 2.690882 -0.50082
18 8.5 2.514843 2.014026
19 40.7 11.25389 13.26791

Table 8.20: Discounted cash flow for discount rate = 8% p.a
End of
year (k)
Non-discounted
cash flow
Discounted cash
flow
Cumulative Discounted
cash flow
0 -17 -17 -17
1 -34 -31.4815 -48.4815
2 -27.2 -23.3196 -71.8011
3 1.3 1.031982 -70.7691
4 12.58 9.246676 -61.5224
5 10.948 7.451025 -54.0714
8.33

6 9.9688 6.282035 -47.7894
7 12.9064 7.53076 -40.2586
8 11.4376 6.179379 -34.0792
9 8.5 4.252116 -29.8271
10 8.5 3.937145 -25.89
11 8.5 3.645504 -22.2445
12 8.5 3.375467 -18.869
13 8.5 3.125432 -15.7436
14 8.5 2.893919 -12.8497
15 8.5 2.679554 -10.1701
16 8.5 2.481069 -7.68903
17 8.5 2.297286 -5.39175
18 8.5 2.127117 -3.26463
19 40.7 9.430681 6.16605

Table 8.21: Discounted cash flow for discount rate = 9% p.a
End of
year (k)
Non-discounted
cash flow
Discounted cash
flow
Cumulative Discounted
cash flow
0 -17 -17 -17
1 -34 -31.1927 -48.1927
2 -27.2 -22.8937 -71.0864
3 1.3 1.003839 -70.0825
4 12.58 8.911989 -61.1705
5 10.948 7.115449 -54.0551
6 9.9688 5.94407 -48.111
7 12.9064 7.060243 -41.0508
8 11.4376 5.740146 -35.3106
9 8.5 3.913636 -31.397
10 8.5 3.590492 -27.8065
11 8.5 3.294029 -24.5125
12 8.5 3.022045 -21.4904
13 8.5 2.772518 -18.7179
14 8.5 2.543595 -16.1743
8.34

15 8.5 2.333573 -13.8407
16 8.5 2.140893 -11.6998
17 8.5 1.964122 -9.73572
18 8.5 1.801947 -7.93377
19 40.7 7.91573 -0.01804


Table 8.22: Discounted cash flow for discount rate = 10% p.a
End of
year (k)
Non-discounted
cash flow
Discounted cash
flow
Cumulative Discounted
cash flow
-17 -17 -17 -17
-34 -30.9091 -47.9091 -34
-27.2 -22.4793 -70.3884 -27.2
1.3 0.976709 -69.4117 1.3
12.58 8.592309 -60.8194 12.58
10.948 6.797847 -54.0216 10.948
9.9688 5.627128 -48.3944 9.9688
12.9064 6.623024 -41.7714 12.9064
11.4376 5.335725 -36.4357 11.4376
8.5 3.60483 -32.8309 8.5
8.5 3.277118 -29.5537 8.5
8.5 2.979198 -26.5745 8.5
8.5 2.708362 -23.8662 8.5
8.5 2.462147 -21.404 8.5
8.5 2.238316 -19.1657 8.5
8.5 2.034832 -17.1309 8.5
8.5 1.849848 -15.281 8.5
8.5 1.68168 -13.5994 8.5
8.5 1.5288 -12.0706 8.5
40.7 6.654775 -5.41578 40.7



8.35


Figure 8.5: Cumulative cash flow diagram using different discount rates

i) Payback Period

Payback period is defined as time required after start-up, to recover the fixed capital
investment, FCI
L
required for the project, with all cash flows discounted back to time
zero. The payback period shown in Figure 9.8 can be found as follows.
iscountcJ :oluc o lonJ + working copitol = 17 x10
6
+
10.2x10
6
1 .1 546
2

= RH24 .65x10
6

Therefore, find time after start-up when cumulative cash flow is RH2 4.65x10
6

Poybock pcrioJ = 5 +
( 30.50 + 2 4.65)
( 30.50 + 1 9.06)

= 5 .5 1 ycors
This means that plant takes about 5.5 years after start-up to get back the fixed capital
investment. In other words, it takes about 7.5 years for the plant to "repay" the sum of
the original investment after the commencement of constructions.

-100
-50
0
50
100
150
0 5 10 15 20 C
a
s
h

(
R
M

m
i
l
l
i
o
n
)
Time ( year s)
Cumulat ive cash f low diagram using diff er ent discount rat es
8.36

ii) Net Present Worth

The discounted cumulative cash position, more commonly known as the net present
value (NPV) or net present worth (NPW) of the project is defined as cumulative
discounted cash position at the end of the project. The net present value decision rule is
to accept positive net present value project and reject project with the negative NPV.

The net present worth for the project is RM6.17x10
6
as shown in Table 9.21. Therefore,
the project is accepted since the net present value is positive.

iii) Present Value Ratio

Again, the net present value of a project is greatly influenced by the level of fixed capital
investment and a better criterion for comparision of projects with different levels may be
the present value ratio (PVR)
PIR =
Prcscnt :oluc o oll positi:c cos lows
Prcscnt :oluc o oll ncgoti:c cos lows

A present value ratio of unity for a project represents a break even situation. Values
greater than unity indicate profitable processes while those less than unity represent
unprofitable projects. Therefore, for this project, the PVR can be evaluated as follows
PIR
=
[
1.03 + 9.25 + 7.45 + 6 .2 8 + 7.53 + 6.18 + 4.2 5 + 3 .93 + 3.65 + 3.38 + 3 .1 3 + 2 .89 + 2.68
+ 2 .48 + 2.30 + 2.12 + 9.43
x 1 0
6

( 17 + 31 .4 8 + 23.32) x 10
6
=
7 7.97x 1 0
6
7 1.80x 1 0
6

= 1.08>1

iv) Discounted Cash Flow Rate of Return

The discounted cash flow rate of return (DCFROR) is defined to be the interest rate at
which all the cash flows must be discounted in order for net present value or net
present worth of the project to be equal to zero. Therefore, the DCFROR represents the
highest, after-tax interest or discount rate at which the project can just break even. It is
worth noting that for evaluation of the discounted cash flow rate of return, no interest
8.37

rate is required since this is what is calculated. If the value of DCFROR is greater than
internal discount rate, then the project is considered to be profitable.
The net present values for several discount rates which have previously been
calculated (Table 8.18 to Table 8.22) are summarized in the following Table 8.23.

Table 8.23: NPV as a function of discount rates ( values in $million)
Interest or Discount Rate Net present worth
7%
30.32
8%
21.82
9%
14.36
10%
7.84
12%
-2.93

The value of DCFROR can be calculated by interpolating from the table above.

( CFR0R 10% )
( 12% 1 0% )
=
( 0 7 .8 4x10
6
)
( 2.9 3x10
6
7.84 x10
6
)

CFR0R = 11.46 %

Clearly, the DCFROR is greater than internal discount rate (11.46% p.a). Therefore, the
project is considered to be profitable.


8.5 CONCLUSION

Table 8.26 summarizes the costs and profitability criteria for this plant. The fixed capital
investment for this plant is around RM51 million and the cost of manufacturing with and
without depreciation are RM41million and RM36 million respectively. The breakeven
point is achieved when the plant produces 6000 metric tonnes per year of 1-propanol
8.38

which is well below the planned production of 100000 metric tonnes per year. By
considering a discount rate of 10% per annum, the payback period is 5.5 years after
start-up or 7.5 years after the beginning of the constructions. The net present worth or
net present value is found to be RM50.86 million) and the present value ratio is 1.08.
The discounted cash flow rate of return for the plant is computed to be 11.46% which
gives the net present value of zero. Based on these criteria, it can be concluded that the
proposed 1-propanol plant is profitable.
Table 8.24: Summary of economic analysis
Items Data/Value
Grass root cost, C
GR
or Fixed capital investment, FCI RM51*
Cost of manufacturing with depreciation, COM RM41*
Cost of manufacturing without depreciation, COM
d
RM36*
Depreciation method MACRS
Variable cost, VC RM26*
Fixed cost, FC RM9.27*
Project life after start-up 17 years
Payback period 5.5 years after start-up
Net present value at 8% discount rate (NPV) RM6.16*
Present value ratio (PVR) 1.08
Discounted cash flow rate of return (DCFROR) 8.99%
Salvage value RM1*
.Note*: in million





8.39

8.6 REFERENCES

1) Turton et al, 2003, Analysis, Synthesis, and Design of Chemical Processes,
Prentice Hall International Series.

2) Peters. Max S. and Timmerhaus, Klaus D. (1991). Plant Design and Economics
for Chemical Engineers. 4
th
Edition. Singapore: McGraw-Hill Book Company.

3) Ulrich, G. D. (1984). A Guide to Chemical Engineering Process Design and
Economics. Toronto : John Wiley & Sons.

4) Perry, R.H. and Green, D.W. (1997). Perrys Chemical Engineering Handbook.
7
th
ed. USA: McGraw-Hill, Inc


5) Sinnott, R.K. (1983). Chemical Engineering Volume 6. 1
st
ed. Great Britain:
Pergamon Press.

6) Mark, H.F., Othmer, D.F., Overberger, C.G. and Searborg, G.T. (1963). Kirk-
Othmer: Encyclopedia of Chemical Technology Volume 1. 3
rd
ed. USA: Interscience
Publisher. 414-424.