PRODUCT and PROCESS DESIGN

LECTURE 07

Profitability Analysis
Warren D. Seider University of Pennsylvania Philadelphia, Pennsylvania Holger Nickisch Consultant

Approximate Measures of Economic Goodness

Total Production Cost

S-C

Usually

Return on Investment (ROI) =

Annual Earnings (Pretax or After - tax) C TCI

C TPI + C WC

Assume 330 days of operation 330/365 = 0.9041 = operating factor Project production First year 1/2 0.9 capacity Second year - 3/4 0.9 capacity Third year - 1.0 0.9 capacity Income Tax = 0.37 Pretax Earnings After-tax Earnings = Pretax Earnings Income Tax = 0.63 Pretax Earnings

For ROI

Profitability Analysis

Warren D. Seider, University of Pennsylvania

PRODUCT and PROCESS DESIGN

LECTURE 07

Cost Sheet Outline Table 17.1 (SSL, 2004)

Profitability Analysis

Cost Sheet Outline Table 17.1 (SSL, 2004) Contd.

Profitability Analysis

Warren D. Seider, University of Pennsylvania

PRODUCT and PROCESS DESIGN

LECTURE 07

Working Capital
CWC = cash reserves + inventory + accts. receivable - accts. payable
30 days of raw materials, utilities, operation, maintenance, . . . 7 days of liquid and solid products at sales price (gases are pipelined) 30 days of products at sales price 30 days of feedstocks

CTCI = CTPI + CWC

Profitability Analysis

Approximate Measures Table 17-4 (SSL, 2004) Time value of money ignored straight-line depreciation used

Profitability Analysis

Warren D. Seider, University of Pennsylvania

PRODUCT and PROCESS DESIGN

LECTURE 07

To obtain more accurate assessments of financial goodness, cash flows are computed for each year of the project. Plant Construction Annual cash flow = - f CTDC CWC - Cland Operation Pretax earnings = S CExcl. dep D Income Tax = 0.37 Pretax earnings
Use MACRS depreciation

After-tax earnings = Pretax earnings Income tax = 0.63(S CExcl. dep D) Ann. cash flow = After-tax earnings + D - f CTDC CWC Cland + = 0.63(S CExcl. Dep) + 0.37D - f CTDC CWC Cland + Profitability Analysis
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Modified Accelerated Cost Recovery System MACRS Tax Basis Depreciation Table 17-4 (SSL, 2004)

Profitability Analysis

Warren D. Seider, University of Pennsylvania

PRODUCT and PROCESS DESIGN

LECTURE 07

Example 15 yr project life CTDC = $90MM, installed over three years (1997-1999) CWC = $40MM At 90% of capacity (3rd yr and later) S = $150MM/yr (1st yr = $75MM, 2nd yr = $113MM)

CExcl. Dep = $100MM/yr (1st yr = $55MM, 2nd yr = $78MM)

Profitability Analysis

Profitability Analysis

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Warren D. Seider, University of Pennsylvania

PRODUCT and PROCESS DESIGN

LECTURE 07

Profitability Analysis

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Profitability Analysis-1.1.xls by Holger Nickisch See Section 17.8 (SSL, 2004) Aligned with specifications and format of Chapters 16 and 17 in SSL, 2004. Extensive Visual BASIC (VBA) programming is used to reduce most common sources of error when setting up a complicated spreadsheet in EXCEL. Data is entered in dialog boxes and output is formatted on presentable pages. The user need not know VBA. Login dialog box enter user name - student password - engineer Start New Analysis or Load Existing Analysis Profitability Analysis
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Warren D. Seider, University of Pennsylvania

PRODUCT and PROCESS DESIGN

LECTURE 07

Monochlorobenzene Separation Process

Profitability Analysis

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From ASPEN PLUS simulation (file MCB.bkp): MCB product (S14) 5,572.1 lb/hr - $0.54/lb Feed stream (S01) 9,117.1 lb/hr - $0.30/lb Benzene by-product (S11) 3,132.7 lb/hr - $0.15/lb High pressure steam Cooling water Electricity Purchase Costs Absorber Distil. Column Heat Exchangers Flash & Storage Pumps 1365.5 lb/hr - $0.004/lb 129,270 lb/hr $0.000006/lb 9.6 kW - $0.04/kWhr Bare Module Factor 4.16 4.16 3.17 4.16 3.3
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Purchase Cost $29,900 115,600 11,900 87,200 5,000

Profitability Analysis

Warren D. Seider, University of Pennsylvania

PRODUCT and PROCESS DESIGN

LECTURE 07

Working Capital Inventory MCB product Feed Accounts Receivable 4 days 2 days 30 days

Note: Defaults in spreadsheet are recommended in Chapters 16 and 17 (SSL, 2004) Solution is provided in Section 17.8 Student Assignment Exercise 17.21 Toluene hydrodealkylation process Profitability Analysis
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Warren D. Seider, University of Pennsylvania