You are on page 1of 4


This chapter is on analyzing the economic feasibility of the project. The
key factor of designing a chemical plant is to maximize profits of the
company. Therefore it is vital to make sure that there will be profits
generated and that the project won’t be running at a loss. Reaching the
break even in a short period is critical as it is less risky for investors to
invest and to gain a good profit. Identifying the capital cost, the total
revenue and total cost of the project throughout a time period will lead us
in concluding whether this project is viable or not.
There are numerous cost categories which need to be considered. First
comes the capital cost. It is estimated a construction period of 2 years for
this plant. Then estimates for setting up costs and all the operating costs
are identified. The pricing for equipment, raw material and the final
product are in USD $. These figures were converted into LKR by using an
exchange rate of 134.04.
Since there are many aspects to be considered the investment decision
cannot be made based on one economic indicator. Various aspects need
to be considered before making the final decision. The economic
indicators used to evaluate this project are the Simple Payback Time,
Return on Investment (ROR), Net Present Value (NPV), and the Internal
Rate of Return (IRR). These different tools have their own advantages and
drawbacks. Therefore every calculation needs to be analyzed accordingly
before deciding to take up the investment decision or not.
Capital investment
The capital investment is the initial cost which is incurred to start up the plant. This is a one
off cost which needs to be recovered from the profits earned during the production process.
This will be distributed among the 2 years of construction of the project. The capital
investment comprises of fixed costs and working capital components

875.000 Buildings and structures 25.000 Equipment cost 26.000 Site Preparation (1.5% of land) 231. Fixed costs The fixed capital costs can be divided into direct costs and indirect costs.400.000/perch * 220perches) 15.1. Type of direct costs Value Land (70.020 Piping & fittings 4600000 Installation and wiring (10% of equipment cost) Total Direct Capital Costs (DCC) Indirect Costs Design & Engineering (20% of DCC) 16997117 Contractors fees (5% of DCC) 4249279 Contingency Allowance (1% of DCC) 849856 Total Indirect Capital Costs Total Fixed Capital Cost .000.

of units Cost $ Feed drum 20000 1 20000 Vapourizer 5000 1 5000 Fired heater 6000 1 6000 16000 1 16000 Furnace 6000 1 6000 Scrubber 10000 1 10000 Cooler 6000 1 6000 Condenser 7500 1 7500 Flash Distillation Column 25000 1 25000 Distillation column 2 130000 Tubular Reactor Flow 65000 Other Equipment 9000 Total Equipment Cost 200500 Total Equipment Cost in LKR ($/LKR = 134.04) = 295.350 1.332.000*134.04 = LKR 39.Equipment Unit cost $ No. Working capital .

Working capital is the additional investment needed. The working capital requirement for a chemical plant is generally 12% of the fixed capital cost. 5. Start-up. over and above the fixed capital. Initial catalyst charges. Most of the working capital is recovered at the end of the project. Installation and wiring. Working Capital . 1. Funds to cover outstanding accounts from customers. Finished product inventories. 4. The total investment needed for a project is the sum of the fixed and working capital. Contingency Allowance. Piping and Fittings. Year Capital Cost 0 Land and Site preparation 1 Buildings and Structures. The total capital cost will be distributed among these 2 years of construction. Raw materials and intermediates in the process. 3. 2. to start the plant up and operate it to the point when income is earned. It includes the following components. Fixed Capital Cost (FCC) Working Capital Cost (12% of FCC) Total Capital Cost *The construction period of the plant is estimated to be 2 years. Contractors Fees 2 Equipments. Design and Engineering.