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Section 2. Engineering Economic Analysis of Chemical Processes

Section 2. Engineering Economic Analysis of Chemical Processes

In this section, we concentrate on the evaluation of the economics of a chemical process. In order for a chemical engineer or cost engineer to evaluate the economic impact of a new (or existing) chemical process, certain technical information must be available. Although this information is gleaned from a variety of sources, it is generally presented in the form of the technical diagrams discussed in Chapter 1.

In the chapters of this section, methods to evaluate the economics of a chemical process are covered. The term economics refers to the evaluation of capital costs and operating costs associated with the construction and operation of a chemical process. The methods by which the one-time costs associated with the construction of the plant and the continuing costs associated with the daily operation of the process are combined into meaningful economic criteria are provided.

This material is treated in the following chapters.

Chapter 7: Estimation of Capital Costs

The common types of estimates are presented along with the basic relationships for scaling costs with equipment size. The concept of cost inflation is presented, and some common cost indexes are presented. The concept of total fixed capital investment to construct a new process is discussed, and the cost module approach to estimating is given. Finally, the software program (CAPCOST) to evaluate fixed capital costs (and other financial calculations) is described.

Chapter 8: Estimation of Manufacturing Costs

The basic components of the manufacturing costs of a process are presented. A method to relate the total cost of manufacturing (COM) to five elements—fixed capital investment, cost of operating labor, cost of raw materials, cost of utilities, and cost of waste treatment—is given. Examples of how utility costs can be calculated from the basic costs of fuel, power, and water are discussed. The estimation of labor costs based on the size and complexity of the process are also given.

Chapter 9: Engineering Economic Analysis

The concept of the time value of money is discussed. The following topics are presented: simple and compound interest, effective and nominal interest rates, annuities, cash flow diagrams, and discount factors. In addition, the concepts of depreciation, inflation, and taxation are covered.

Chapter 10: Profitability Analysis

The ideas discussed in Chapter 9 are extended to evaluate the profitability of chemical processes. Profitability criteria using nondiscounted and discounted bases are presented and include net present value (NPV), discounted cash flow rate of return (DCFROR), and payback period (PBP). A discussion of evaluating equipment alternatives using equivalent annual operating costs (EAOC) and other methods is presented. Finally, the concept of evaluating risk is covered and an introduction to the Monte Carlo method is presented.


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