University of Engineering and Technology Peshawar: Name: Insiram Naveed

UNIVERSITY OF ENGINEERING AND TECHNOLOGY PESHAWAR
Name: Insiram Naveed
Registration number: 18PWCHE1350
Section: A
Department: Chemical
Submitted to: Sir Muazzam Arshad

ASSIGNMENT
Read and summarize Chapter No. 2 Process Economics in 2 to 3 pages
SUMMARY
2.1 THE ROLE OF PROCESS ECONOMICS
understanding of process economics is critical in

process design. It has three basic roles in
process design:
Evaluation of design options.

Evaluation of costs is required
Process optimization.
The setting of process variables has on effect on decision making in developing the flowsheet
and overall profitability of process.
Overall project profitability.
evaluated at different stages during the design to assess whether the project is economically
viable.
2.2 CAPITAL COST FOR NEW DESIGN
It has 5 main parts
• Battery limits investment
The battery limit is a geographic
boundary that defines the manufacturing area of
the process. This part converts raw material into products.
• Utility investment
It includes electricity generation and distribution, steam generation, steam distribution,
process water, cooling water, firewater, effluent treatment, refrigeration, compressed air, inert
gas (nitrogen).
• Off-site investment
It includes auxiliary buildings, roads and paths, railroads, fire protection systems,
communication systems, waste disposal systems, storage facilities for end product, water and
fuel not
directly connected with the process and plant service vehicles, loading and weighing devices.
The cost of the utilities and off-sites (together sometimes referred to as services) ranges
typically from 20 to 40% of the total installed cost of the battery limits plant.
• Working capital
Working capital is what must be invested to get the plant into productive operation. It
includes raw materials for plant start-up (including wasted raw materials), raw materials,
intermediate and product inventories, cost of transportation of materials for start-up, money to
carry accounts receivable (i.e., credit extended to customers) less accounts payable (i.e., credit
extended by suppliers), money to meet payroll when starting up.
• Total capital cost
can be obtained by applying multiplying factors or installation factors to the purchase cost of
individual items of equipment.
2.3 CAPITAL COST FOR RETROFIT

Installation factors for equipment in retrofit can be completely different from grassroot design,
and could be higher or lower. Multiple orders of equipment might lead to a reduction in capital
cost from the equipment vendor and lower transportation costs. However, most often, retrofit
installation factors will tend to be higher than in grassroot design and can be very much higher.
As an example, one very common retrofit situation is the replacement of distillation column
internals to improve the performance of the column. This calls for existing internals to be
removed and then to be replaced with the new internals. For retrofit working capital is also
difficult to generalize and for some projects no significant working capital is associated because
the raw materials and ingredients are the same.
2.4 ANNUALIZED CAPITAL COST

Annualized costs are calculated from a total capital cost, the lifetime of the device (or loan),
and the interest rate charged for the loan.
Capital for new installations may be obtained from Loans from banks, Issue by the company of
common (ordinary) stock, preferred stock or bonds (debenture stock) and Accumulated net
cash flow arising from company profit
over time.
i (1+i )n
Annualized capital cost = capital cost × n
( 1+i ) −1
where i = fractional interest rate per year
n = number of years
2.5 OPERATING COST
It includes
Raw materials cost:
In most processes, the largest individual operating cost is raw materials. The cost of raw
materials and the product selling prices tend to have the largest influence on the economic
performance of the process.
Catalysts and chemicals consumed in manufacturing other than raw materials:
Catalysts will need to be replaced or regenerated though the life of a process. For
homogeneous catalysts replacement might be on a continuous basis. Replacement can also be
continuous for heterogeneous if they deteriorate rapidly, and regeneration cannot fully
reinstate the catalyst activity
Utility operating cost:
Utility operating cost is usually the most significant variable operating cost after the cost of raw
materials. This is especially the case for the production of commodity chemicals. Utility
operating cost includes:
fuel, electricity, steam, cooling water, refrigeration, compressed air, inert gas.
Labor cost:
Cost of labor depends on the process whether it is continuous or batch the level of automation,
the number of processing steps and the level of production.
Maintenance:
The cost of maintenance depends on whether processing materials are solids on the one hand
or gas and liquid on the other.
2.6 SIMPLE ECONOMIC CRITERIA

For optimization simple economic criteria need sales revenue from product. Sales consist of
fixed cost and variable cost which depend on rate of production.
Fixed costs independent of the rate of production include Capital cost repayments, Routine
maintenance, Overheads (e.g., safety services, laboratories, personnel facilities, administrative
services), Quality control, Local taxes, Labor and Insurance.
Variable costs that depend on the rate of production include: Raw materials, Catalysts and
chemicals consumed in manufacturing (other than raw materials), Utilities (fuel, steam,
electricity, cooling water, process water, compressed air, inert gases, etc.), Maintenance costs
incurred by operation, Royalties and Transportation costs.
2.7 PROJECT CASH FLOW AND ECONOMIC EVALUATION

As the design progresses, more information is accumulated. The best methods of assessing the
profitability of alternatives are based on projections of the cash flows during the project life. A
cumulative cash flow curve for a project throughout its life forms the basis for more detailed
evaluation. Many quantitative measures or indices have been proposed. In each case,
important features of the cumulative cash flow curve are identified and transformed into a
single numerical measure.
Payback time:
Payback time is the time that elapses from the start of the project to the breakeven point). The
shorter the payback time, the more attractive is the project.
Return on Investment (ROI):

Return on investment (ROI) is usually defined as the ratio of average yearly income over the
productive life of the project to the total initial investment, expressed as a percentage.
Net present value (NPV):

Money received now has a greater value than money if received at some time in the future. The
net present value of a project is the sum of the present values of each individual cash flow.
Discounted cash flow rate of return:

Discounted cash flow rate of return is defined as the discount rate , which makes the NPV of a
project to zero.
2.8 INVESTMENT CRITERIA

The decision as to whether to proceed with a project will depend on many factors. There is
most often stiff competition within companies for any capital available for investment in
projects. The decision as to where to spend the available capital on a particular project will, in
the first instance but not exclusively, depend on the economic criteria discussed in the previous
section. Criteria that account for the timing of the cash flows (the NPV and DCFRR) should be
the basis of the decision-making. The higher the value of the NPV and DCFRR for a project,
the more attractive it is. The absolute minimum acceptable value of the DCFRR is the market
interest rate. If the
DCFRR is lower than market interest rate, it would be better to put the money in the bank. For a
DCFRR value greater than this, the project will show a profit, for a lesser value it will show a
loss.

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UNIVERSITY OF ENGINEERING AND TECHNOLOGY PESHAWAR

Name: Insiram Naveed

Registration number: 18PWCHE1350

Submitted to: Sir Muazzam Arshad

understanding of process economics is critical in

Evaluation of design options.

2.3 CAPITAL COST FOR RETROFIT

2.4 ANNUALIZED CAPITAL COST

2.5 OPERATING COST

2.6 SIMPLE ECONOMIC CRITERIA

2.7 PROJECT CASH FLOW AND ECONOMIC EVALUATION

Return on Investment (ROI):

Net present value (NPV):

Discounted cash flow rate of return:

2.8 INVESTMENT CRITERIA

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