CAPITAL COST ESTIMATION

Capital investment
• Capital investment is the total amount of money needed
to supply the necessary plant and manufacturing facilities
plus the amount of money required as working capital for
operation of the facilities.

Types of cost Direct cost

Indirect cost
Error of cost estimation
• Of the many factors which contribute to poor estimates of
capital investments, the most significant one is usually traceable
to sizable omissions of equipment, services, or auxiliary
facilities rather than to gross errors in costing. A check list of
items covering a new facility is an invaluable aid in making a
complete estimation of the fixed-capital investment. Table 1
gives a typical list of these items.
Check list
Capital cost
Fixed capital investment
Working capital
Order Of Magnitude OOM method
1- Cost capacity relation
Cost capacity exponent

economies of scale are the cost advantages that enterprises

obtain due to size, output, or scale of operation, with cost per
unit of output generally decreasing with increasing scale as fixed
costs are spread out over more units of output.
Example 1
Example 2
• A New Plant Ordered a Set of Floating Head Heat Exchangers
(Area = 100 m2) cost $92,000. What Would Cost be for a Heat
Exchanger for Similar Service if Area = 50 m2 and n = 0.44 ?

0.44
50
𝐶50 = 92000 = 67000$
100

• 100 m2 Exchanger is not twice as expensive as a 50 m2

exchanger>>> economy of scale
Cost index for inflation
Example3

300000
2- turn over ratio method
Turn over ratio
Example 4
Working capital
Working capital estimation method
Percentage of capital investment method
Example 6
Solution
2- Study estimates of capital cost
• BL (Battery Limits) plant costs are the cost of procuring and
installing all process equipment. ISBL costs include purchasing
and shipping costs of equipment, land costs, infrastructure,
piping, catalysts, and any other material needed for final plant
operation, or construction of the plant. ISBL costs also include
any associated fees with construction such as permits,
insurance, or equipment rental, even if these items are not
needed once the plant is operational.
Study estimates
1- lang method
• A simple technique to estimate the capital cost of a
chemical plant is the Lang Factor method. The Lang
factor method has a tendency to produce high results. The total
cost is determined by multiplying the total purchased cost for all
the major items of equipment by a constant. The multipliers,
depending on the type of plant are given in table below.
Example 7
• A small fluid processing plant is considered for construction
adjacent to a larger operating unit at a large plant site. The
present delivered equipment costs are as follow:

• Estimate the total capital cost using lang factor assuming a 15%
contingency factor
Solution
• The total cost of the equipment = 2715000$
• Since it is a fluid factory the lang factor is 4.74

• C= 4.74* 2715000=12 869 100

• The additional contingency cost =
0.15*12 869 100= 1 930 000
The total cost = 1 930 000+ 12 869 100= 14799465$
• Or 14 800 000$
Study estimate
2. Hand method

FOB (free on board): to describe the point at which a seller is no longer

responsible for shipping cost.
Hand factors
Example 8
• Solve example 7 for battery limits fixed capital investment
using the hand method and 15% contingency.
Solution
Solution
Preliminary study
1. chilton method
Preliminary estimates
1. chilton method
Example
A small fluid processing plant is to be built at an existing plant site.
The delivered equipment costs are:

The equipment is to be installed in an outdoor structure. The process is

heavily instrumented, and auxiliary services and outside lines are
minimal. The process is well defined and is based upon a similar unit
built at another company location. Estimate the battery-limits fixed
capital investment using the Chilton method.
Sol’
Comparison of the accuracy
Comparison of the accuracy

Most
accurate
0% error
Preliminary Estimates
2. Peters and Timmerhaus method
This method begins with purchased equipment costs delivered
and combines some of the features of the Lang and Chilton
methods.
A process is classified according to whether it is a solid, solid–
fluid, or fluid processing plant like the Lang method, and then 12
factors for direct and indirect costs are applied as in the Chilton
method.
Example
• Find the capital cost of a fluid production factory based on the
delivered cost of the following items using Peter and
Timmerhaus method. No land needed to be purchase
Preliminary estimates
3. Holland method
Example
• From the previous example find the capital cost using Holland
method for a fluid production factory. Knowing that the factory
is of little instrumentation control, the machines installed inside
the building with a minor addition, the outside lines available
for the existing plant, the plant design is straightforward and
small, and the contingency factor is assumed to be 10%

• Hint: use the min value for the given range.

Sol’
• The total delivery cost of the equipements is 2715000$
• Based on the table the value of ∅1 is 1.47
• The values of f1, f2, f3, f4, and f5 are 0.3, 0.02, 0.6, 0, and 0
respectively
• ∅2 = 1 + 𝑓1 + 𝑓2 + 𝑓3 + 𝑓4 + 𝑓5 = 1.92

• The values of the f6, f7, and f8 are 0.2, 0.05, and 0.1
respectively

• ∅3 = 1 + 𝑓6 + 𝑓7 + 𝑓8 = 1.35
• Ct =1.47*1.92*1.35*2715000=
COST FACTORS IN CAPITAL
INVESTMENT
• The cost factors presented here are based on a careful study by
Bauman and associates plus additional data and interpretations
from other more recent sources with input based on modern
industrial experience
Example
• Estimation of fixed-capital investment using ranges of
process-plant component costs. Make a study estimate of the
fixed-capital investment for a process plant if the purchased-
equipment cost is $100,000. Use the ranges of process-plant
component cost outlined in Table 4 for a process plant
Solution