Capital

source
and sink
V, manufacturing
fixed capital
investment for
project
A
x
, non-
manufacturing
fixed capital
investment for
project
W, working capital
investment for
project
Operations for
complete project
Loans
Preferred stock Bonds
Common stock
Other capital input
Stockholders
dividends
Repayment of
borrowed capital
Other
investments
T
o
t
a
l

c
a
p
i
t
a
l

i
n
v
e
s
t
m
e
n
t

(
w
i
t
h
o
u
t

l
a
n
d
)
C
oj
Costs for
operations (not
including
depreciation)
s
j
Total income from
sales $
s
j
-c
oj
Gross profit
(before depreciation
charge)
Total capital
Investment
(without
land),
T=W+A
x
+V
(s
j
c
oj
d
j
)(1-) Net profit after taxes
d
j
Depreciation charge
(s
j
c
oj
d
j
)(1-) Gross profit
(s
j
c
oj
d
j
) Income taxes
( is generally 35% of gross profit)
A
j
Net cash flow from
the project including
depreciation charge
A
j
= (s
j
c
oj
d
j
)(1-) + d
j
=(s
j
c
oj
)(1-) + d
j

Capital
source
and sink
V, manufacturing
fixed capital
investment for
project
A
x
, non-
manufacturing
fixed capital
investment for
project
W, working capital
investment for
project
Operations for
complete project
Operations for
complete project
Loans
Preferred stock Bonds
Common stock
Other capital input
Stockholders
dividends
Repayment of
borrowed capital
Other
investments
T
o
t
a
l

c
a
p
i
t
a
l

i
n
v
e
s
t
m
e
n
t

(
w
i
t
h
o
u
t

l
a
n
d
)
C
oj
Costs for
operations (not
including
depreciation)
s
j
Total income from
sales $
s
j
-c
oj
Gross profit
(before depreciation
charge)
Total capital
Investment
(without
land),
T=W+A
x
+V
(s
j
c
oj
d
j
)(1-) Net profit after taxes
d
j
Depreciation charge
(s
j
c
oj
d
j
)(1-) Gross profit
(s
j
c
oj
d
j
) Income taxes
( is generally 35% of gross profit)
A
j
Net cash flow from
the project including
depreciation charge
A
j
= (s
j
c
oj
d
j
)(1-) + d
j
=(s
j
c
oj
)(1-) + d
j

Analysis of Cost
Estimation
Net profit = Total income all expenses
direct plant expenses
raw materials, labor, utilities
indirect expenses
administrative salaries, product sales, distribution costs
Capital
source
and sink
Operations for
complete project
Loans
Preferred stock Bonds
Common stock
Other capital input
Stockholders
dividends
Repayment of
borrowed capital
Other
investments
T
o
t
a
l

c
a
p
i
t
a
l

i
n
v
e
s
t
m
e
n
t

(
w
i
t
h
o
u
t

l
a
n
d
)
s
j
Total income from
sales $
s
j
-c
oj
Gross profit (before
depreciation charge)
V, manufacturing
fixed capital
investment for
project
A
x
, non-
manufacturing
fixed capital
investment for
project
W, working capital
investment for
project
C
oj
Costs for
operations (not
including
depreciation)
Total capital
Investment
(without
land),
T=W+A
x
+V
(s
j
c
oj
d
j
)(1-) Net profit after taxes
d
j
Depreciation charge
(s
j
c
oj
d
j
) Gross profit
(s
j
c
oj
d
j
) Income taxes
( is generally 35% of gross profit)
A
j
Net cash flow from
the project including
depreciation charge
A
j
= (s
j
c
oj
d
j
)(1-) + d
j
=(s
j
c
oj
)(1-) + d
j

Cash flow for industrial operations

Raw materials and labor
Estimation of
Capital
Investment
V, manufacturing
fixed capital
investment for
project
A
x
, non-
manufacturing
fixed capital
investment for
project
W, working
capital investment
for project
Total capital
Investment
(without land)
T = W + A
x
+ V
T
o
t
a
l

c
a
p
i
t
a
l

i
n
v
e
s
t
m
e
n
t

(
w
i
t
h
o
u
t

l
a
n
d
)
Total capital investment (without land)
Fixed capital
Investment A
x
+ V
Some of the capital investment
can occur as a lump sum.
The flow of cash for the fixed
capital investment is usually
spread over the entire
construction period.
Because income from sales
and cost of operations may
occur on an irregular time
basis, a reservoir of working
capital must be available to
meet these requirements.
Cumulative cash position effects of cash flow over full life cycle of
industrial operation (time value of money was neglected)
Here the total capital investment is repaid in 5 years
Factors Affecting Investment and
Production Costs
The engineer must be aware of actual prices for raw materials and
equipment, company policies, government regulations and others
Sources of Equipment
Price fluctuations
Company policies
Operating time and rate of production
Government policies
Must keep up to date with
prices and wage fluctuations:
Monthly Labor Review (US
Bureaus of Labor Statistics)
Major effect on the
profits!
Direct effect!
Occupational Employment and Wage Estimates:
http://www.bls.gov/oes/oes_data.htm
e.g., Raleigh Durham area:
http://www.bls.gov/oes/current/oes_6640.htm
If equipment stands idle for an extended period,
raw materials and labor costs are usually low;
HOWEVER, many other costs (fixed costs) like
maintenance, protection, depreciation, continue
even though the equipment is not active.
Not producing a product no producing revenue
Downtime should be kept to a necessary
minimum (main source of poor profitability in
process plants).
Maximum
gross earnings
T
o
t
a
l

p
r
o
d
u
c
t

c
o
s
t
T
o
t
a
l

I
n
c
o
m
e

(
a
l
l

p
r
o
d
u
c
t
s
)
Fixed Costs
Breakeven
point
Gross earnings
Loss
Breakeven chart for chemical processing plant
Rate of Production, Kg/s
D
o
l
l
a
r
s

$
0 0.05 0.1 0.15 0.2
0.005
0.010
0.015
0.020
0.025
0
Government Policies
Law and regulations that have a direct effct
on industrial costs
Export tariff regulations
Depreciation taxes
Income tax rules
Environmental and safety regulations
See also http://www.itepnet.org/corp00an.pdf
V, manufacturing
fixed capital
investment for
project
A
x
, non-
manufacturing
fixed capital
investment for
project
W, working
capital investment
for project
Total capital
Investment
(without land)
T = W + A
x
+ V
T
o
t
a
l

c
a
p
i
t
a
l

i
n
v
e
s
t
m
e
n
t

(
w
i
t
h
o
u
t

l
a
n
d
)
Total Capital Investment (without land)
Fixed capital
Investment A
x
+ V
Capital: a stock of
accumulated
wealth Capital is
savings that may
be used. Used for
example in
investment to
promote the
production of other
goods
V, manufacturing
fixed capital
investment for
project
A
x
, non-
manufacturing
fixed capital
investment for
project
W, working
capital investment
for project
Total
capital
Investment
(TCI)
(without land)
T = W + A
x
+ V
T
o
t
a
l

c
a
p
i
t
a
l

i
n
v
e
s
t
m
e
n
t

(
w
i
t
h
o
u
t

l
a
n
d
)
Fixed capital
Investment
A
x
+ V
Working capital (WC): The capital
necessary for the operation of the
plant
Fixed-capital Investment (FCI): The
capital needed to supply the
required manufacturing and plant
facilities
Direct cost
Indirect cost
(WC/TCI) = varies with different companies
Most chemical plants used 10-20% (it may
increase to as much as 50% for companies
producing products of seasonal demand)
V, manufacturing
fixed capital
investment for
project
A
x
, non-
manufacturing
fixed capital
investment for
project
W, working
capital investment
for project
T
o
t
a
l

c
a
p
i
t
a
l

i
n
v
e
s
t
m
e
n
t

(
w
i
t
h
o
u
t

l
a
n
d
)
Fixed Capital Investment (FCI)
Fixed capital
Investment
A
x
+ V
Direct Costs: Capital necessary for the
installed process equipment with all
components that are needed for
complete process operation and also:
Site preparation
Piping
Instruments
Insulation
Foundations
Auxiliary facilities
Indirect cost: Construction overhead
(field office, supervision expenses,
contractors fees, etc) and for all plant
components that are not directly related
to the process operation:
Processing building
Administrative and other offices
Warehouses
Laboratories
Shops
V, manufacturing
fixed capital
investment for
project
A
x
, non-
manufacturing
fixed capital
investment for
project
W, working
capital investment
for project
Total capital
Investment
(without land)
T = W + A
x
+ V
T
o
t
a
l

c
a
p
i
t
a
l

i
n
v
e
s
t
m
e
n
t

(
w
i
t
h
o
u
t

l
a
n
d
)
Fixed capital
Investment
A
x
+ V
Total amount of money invested in:
1. Raw materials and supplies
carried in stock (*)
2. Finished products in stock
3. Semi-finished products being
manufactured
4. Accounts receivable
5. Cash kept on hand for monthly
payment of operating expenses
(salaries, wages and raw
materials purchases)
6. Accounts payable
7. Taxes payable
Working Capital (WC)
(*) Usually 1-month supplies valued at delivery prices
Types of Capital Cost Estimates
1. Order-of-magnitude estimate (ratio estimate) based on similar
previous cost data (+/- 30%)
2. Study estimate (factored estimate) based on knowledge of major
items of equipment (+/- 30%)
3. Preliminary estimate (budget authorization estimate or scope
estimate) based on sufficient data to permit the estimate to be
budgeted (+/- 20%)
4. Definitive estimate (project control estimate) based on almost
complete data but before completion of drawing and
specifications (+/- 10%)
5. Detailed estimate (contractors estimate) based on complete
engineering drawings, specifications and site surveys (+/- 5%)
Cost Indexes
An index value for a given time showing the cost
at that time relative to a certain base time.
obtained was cost original time at value index
time present at value index
cost original cost Present =
Ok if less than 10 years
We can project costs forward by using extrapolated values of
an index or an expected inflation rate.
Most common indexes:
Marshall and Swift all-industry
Process-industry equipment indexes
Engineering News-record construction index
Nelson-Farrar refinery construction index
Chemical Engineering plant cost index
Cost Indices
Marshall & Swift Equipment Cost Indexes
all-industry equipment index - arithmetic average of indexes for
47 different types of industrial, commercial, and housing
equipment
based on an index value of 100 for the year 1926
account for cost of machinery and major equipment plus costs
for installation, fixtures, tools, office, and minor equipment
Engineering News-Record Construction Cost Index
indicates variance in labor rates and materials costs for industrial
construction
one of three basis used: 100 for 1913, 1949 or 1967
Nelson-Farrar Refinery Construction Cost Index
petroleum industry construction costs
basis - 100 for 1946
Cost Indices
Chem. Engr. Plant Cost Index (CEPCI)
construction costs for chemical plants
equipment, machinery and supports, 61%;
erection and installation labor, 22%; buildings,
materials, and labor, 7%; engineering and
supervision, 10%
major components subdivided as: fabricated
equipment, 37%; process machinery, 14%; pipe,
valves, and fittings, 20%; process instruments
and controls, 7%; pumps and compressors, 7%;
electrical equipment and materials, 5%;
structural supports, insulation and paint, 10%
basis - 100 for 1957-1959
Cost Indices
Chem. Engr. Plant Cost Index (CEPCI)
CAPCOST
CAPCOST is a Microsoft Excel
program for estimating bare module, total
module, and grass roots costs of complex
chemical plants.
CHEMICAL ENGINEERING WWW.CHE.COM JANUARY 2006
CHEMICAL ENGINEERING
CHEMICAL ENGINEERING WWW.CHE.COM JANUARY 2006
Chemical Engineering Plant Cost Index from 1950 to 2005
y = 2E-07x
6
- 0.0028x
5
+ 13.738x
4
- 35882x
3
+ 5E+07x
2
- 4E+10x + 1E+13
R
2
= 0.9933
0
50
100
150
200
250
300
350
400
450
500
1940 1950 1960 1970 1980 1990 2000 2010
468.2 2005
444.2 2004
401.7 2003
395.6 2002
394.3 2001
394.1 2000
390.6 1999
389.5 1998
386.5 1997
381.7 1996
381.1 1995
368.1 1994
359.2 1993
358.2 1992
361.3 1991
357.6 1990
355.4 1989
342.5 1988
323.8 1987
318.4 1986
325.3 1985
322.7 1984
316.9 1983
314 1982
297 1981
261.2 1980
CEI YEAR
Update
Aug 2006 Final - CHEMICAL
ENGINEERING PLANT COST
INDEX
351.9 Engineering & Supervision
475.2 Buildings
312.9 Construction Labour
637.7 Structural Supports & Misc.
414.2 Electrical Equipment
788.3 Pumps and Compressors
437.2 Process Instruments
731.7 Pipe, valves and fittings
556.2 Process Machinery
560.9 Heat Exchangers and Tanks
602.3 Equipment
Detailed breakdown for Aug 2006 (final)
CEPCI 510 Aug 2006
Other cost indexes for materials and labors for various
types of industries are published monthly by the US
Bureau of Labor Statistics in the Monthly Labor
Review
http://www.bls.gov/opub/mlr/mlrhome.htm
Current Labor Statistics
"Current Labor Statistics" from the print edition of Monthly Labor Review
Pre-formatted data tables
BLS data for use in databases and spreadsheets
"Current Labor Statistics" from the print edition of Monthly Labor Review
The print edition of Monthly Labor Review regularly features 56 tables of current labor statistics. These tables can be downloaded and printed for reference. (PDF
624K).
--------------------------------------------------------------------------------
Employment and Unemployment Tables
Historical Data for the "A" Tables of the Employment Situation Release (Household/CPS data)
Historical Data for the "B" Tables of the Employment Situation Release (Establishment/CES data)
Tables from Employment and Earnings (Household/CPS data)
Annual average data
Monthly data
Quarterly data
Tables from Employment and Earnings (Establishment/CES data)
Monthly data
Occupational Employment and Wage Data
Employment Projections Tables
http://www.bls.gov/opub/mlr/mlrhome.htm
Occupational
Labor force (demographic)
Education and training
Earnings, occupations
Prices and Living Conditions Tables
Consumer Price Index for All Urban Consumers (CPI-U), All Items, Indexes and Annual Percent Changes from 1913 to the present
International Price IndexesHistorical Tables
Consumer Expenditure Survey data
Standard Bulletin (e.g. Age of reference person, Income before taxes)
Cross-tabulated Bulletin (e.g. Age of reference person by income before taxes)
Metropolitan Statistical Areas (MSAs)
All Consumer Units
Compensation and Working Conditions Tables
Employment Cost Index, Historical Listing (TXT) (PDF 500K)
National Compensation Surveys
Productivity Tables
Industry Labor Productivity Data Tables
Industry Multifactor Productivity Data Tables
Foreign Labor Statistics Tables
International Comparisons of Foreign Labor Statistics
International Price IndexesHistorical Tables
Cost Index and Depreciation Schedules
http://www.dor.state.nc.us/publications/cost_archive/99archive/costindex.html
Cost Components in 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.
Example 6-1: 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 (Table 6-3) for a process plant handling both solids and fluids with
a high degree of automatic controls and essential outdoor operation. Do not include
land.
Sizes and specifications determined
from equipment parameters fixed or
calculated along with the material
and energy balances
Purchased Equipment
The cost of purchased equipment is the basis of several predesign methods for
estimating capital investment.
Equipment:
1. Processing equipment
2. Raw materials handling and storage equipment
3. Finished-products handling and storage equipment.
Most accurate method: obtain firm bids from fabricators and suppliers.
Second best: cost values from the file of past purchase orders (must be
corrected with the appropriate cost index ratio)
Estimating Equipment Cost by Scaling
Predictions can be made using the six-tenths factor rule
b equipment of Capacity
a equipment of Capacity
b equipment of Cost a equipment of Cost
=
=
X
X
.6 0
Use only in the
absence of other
information. Do
not use beyond
10-fold range of
capacity
Purchased-equipment prices are usually quoted as f.o.b. (free on
board, meaning that the purchaser pays the freight).
Pre-design estimates od delivery allowance: 10% of the purchased-
equipment cost is recommended
f.o.b. prices!
Check Example
The six-tenths factor rule
Typical exponents in the six-tenths factor rule
Purchased-Equipment Installation (25-55%!!!)
Involves costs for labor, foundations, supports, platforms, construction
expenses, etc.
There is wide variations of installation labor cost depending on equipment size.
Instrumentation and Controls
8-50 % of the total delivered cost (taking 26%, this is about 5% of the
total capital investment).
Piping
Includes labor, valves, fitting, pipe, support, etc.
Can run as high as 80% of the total delivered cost (about 20 % of the
total fixed capital investment).
Electrical Systems
15-30% of the delivered purchased equipment cost (4-8 % of fixed capital investment)
Buildings
Buildings
Including services, consist of labor, materials and supplies. Plumbing, heating,
ventilation are included.
Yard Improvements
Fencing, grading, roads, sidewalks, railroad sidings, landscaping: 10-20% of
the delivered purchased equipment cost (2-5 % of fixed capital investment)
Service Facilities
Utilities for supplying steam, water, power, compressed air and fuel. Also
includes shop, first aid, cafeteria...30-80% of the delivered purchased
equipment cost (55% on average for plant handling solid/liquids). This is
equivalent to 8-20 % - 14% avg - of fixed capital investment)
Health, Safety, and environmental Functions
See previous table. This is an increasingly important issue. Pollution
mitigation is sometimes the driving force for new process development
Land
Cost factor per acre as high as 30-50% between a rural district and highly
industrialized area. Average land cost for industrial plants amount to 4-8%
of the delivered purchased equipment cost (1-2 % of fixed capital
investment)
By law, land cost cannot be depreciated not included in the fixed-capital
investment.
Engineering and Supervision
Considered as an indirect capital; cost investment approx. 30% of the
delivered purchased equipment cost (8 % of fixed capital investment)
Legal Expenses
1-3 % of fixed capital investment
Construction expenses
Indirect cost associated to temporary construction, and operation,
construction tools and rentals, home office personnel, construction payroll,
travel and living, taxes and insurance, and other construction overhead.
8-10 % of fixed capital investment.
Contractors Fee
2-8% of direct plant cost or 1.5-6% of fixed capital investment
Contingencies
Unexpected events and changes (storms, floods, strikes, etc.)
5-15 % of fixed capital investment (8 % average)
Methods for Estimating Capital Investment
A: Detailed-Item Estimate
B: Unit Cost Estimate
C: Percentage of Delivered-Equipment Cost
D: Lang Factors for Approximation of Capital Investment
E: Power factor Applied to Plant/Capacity ratio
F: Investment cost per unit capacity
G: Turnover ratio
Less detailed information required!
Less preparation time!
Degree of accuracy decreases!
Methods for Estimating Capital Investment
A: Detailed-Item Estimate
Accuracy of +/- 5%
Methods for Estimating Capital Investment
B: Unit Cost Estimate
For preparing definitive and preliminary estimates, requires detailed
estimates of purchased price (quotation or index-corrected costs and
published data)
10-20% accuracy
( )
F
f
n
d
d
f
e
H
e
f
L
M
y
f
x
M
x
f
L
E E
n
C
(

+ +
|
.
|

\
|
+ + + =
'
new
capital
investment
delivered
purchased-
equipment
cost
delivered-
equipment
labor cost
specific
material
unit cost
specific
material
quantity
specific
material
labor unit
cost per
employee-
hours
labor
employee-
hour for the
specific
material
unit cost for
engineering
Engineering
employee-
hour
unit cost for
drawings or
specifications
number of
drawings or
specifications
Construction /
field expense
factor (>1)
Methods for Estimating Capital Investment
C: Percentage of Delivered-Equipment Cost
Requires determination of delivered equipment cost
20-30% accuracy
see next table and textbook spreadsheet
|
.
|

\
|
+ + + + + =
|
.
|

\
|
+ + + + + =
n n
f f f f E E f E f E f E f E
n
C ... ...
3 2 1 3 2 1
1
E is the delivered purchased-equipment cost
f
i
are multiplying factors for piping, electrical, indirect costs, etc. (average %
values presented in next table)
Percentage of Delivered-Equipment Cost (contd)
Check Example
Percentage of Delivered-Equipment Cost (contd)
9. A second evaluation sheet, 'Year-0 $', also is included. It is the same as sheet 'Evaluation', except that all the inflated $
values are converted to constant, year-0 dollars (as discussed in the text). This method is considered to reflect more
realistically the effect of inflation on the profitability measures. The user may change the default inflation rates in order to
study their impacts on profitability.
8. The sheet 'Evaluation' uses values from other sheets to calculate the common profitability measures. The user may
change defaults, or enter desired values into the sheet. In particular, the user may change the default inflation rates in order
to study their effects on profitability. All calculations in 'Evaluation' are made in current (i.e. inflated) dollars. Inflation
adjustments are made from the time of the estimates. To make evaluations for periods of less than 10 years, leave
unneeded columns blank. For periods greater than 10 years, insert columns as needed and copy from an existing year
column into the new columns. Check equations for correct cell references.
7. On the 'Annual TPC' sheet, all values are calculated from information available on other sheets. The user may change
defaults or enter preferred values. The calculated annual TPC is transferred to 'Evaluation'.
6. The 'Depreciation' sheet is used only if the user wishes to change the default (5-year MACRS) depreciation method. To
make a change, copy the appropriate MACRS row to the 'Annual depreciation" row of sheets 'Evaluation' and 'Year-0 $', or,
enter constant annual (straight line) value into depreciation row of those sheets.
5. On the sheet 'Utilities' the quantity of each utility needed annually must be entered in appropriate units. The total annual
utilities cost is transferred to sheet 'Annual TPC'.
4. On the sheet 'Materials & Labor' enter the product prices and flowrates, the raw materials prices and flow rates, and the
labor requirements and current ENR labor index.
3. On the sheet 'Capital Inv.' enter the estimated current total purchased cost of the process equipment. For the proposed
plant type, copy the corresponding "Fraction of calculates and transfers results to appropriate subsequent sheets.
2. Purchased Equipment Costs may be obtained from the file "Equipment Costs, the graphs in the text, or otherwise, and
entered manually into cell H12 on the Capital Inv.' spreadsheet.
1. The sheets are intended for use in the sequence presented. However, any sheet may be by-passed so long as the
information skipped is input manually where needed in subsequent sheets. Default values may be replaced by the user.
The basis for all costs is Jan. 2002.
Cost & Evaluation Workbook accompanying Plant Design and Economics for
Chemical Engineers, 5th edition
Methods for Estimating Capital Investment
D: Lang Factors for Approximation of
Capital Investment
To obtain order-of-magnitude estimates.
Obtained by multiplying the equipment cost by some factor to
approximate the fixed or total capital investment.
D: Lang Factors for Approximation of Capital Investment (contd)
Greater accuracy if a number of factors are used:
(

+ +
|
.
|

\
|
+ + + = A E
m
f
p
f f E f
n
C
i
F
I
1
'
( )
|
|
.
|

\
|
+
|
|
.
|

\
|
=
' '
'
. . . log . . log
E
f
E
e
E f
v
F
506 0 992 0 001 0 154 0 635 0
( )
|
|
.
|

\
|
+
|
|
.
|

\
|
=
' '
'
. . . log . . log
E
p
E
e
E f
p
556 0 156 0 001 0 014 0 266 0
The three installation costs defined as follows:
( )
|
|
.
|

\
|
+ + =
'
'
. . log . . log
E
t
E f
m
194 1 001 0 033 0 344 0
E is the purchased equipment on an f.o.b basis, f
I
is the indirect cost factor (1.4), f
F
is the
cost factor for field labor, f
p
the cost factor for piping materials, f
m
the cost factor for
misellaneous items, E
i
the cost of equipment already installed, A the incremental cost of
corrosion-resistant alloy materials, e the total heat exchanger cost, f
v
the total cost of field-
fabricatd vessels, p the total pump plus driver cost and t the total cost of tower shells.
Methods for Estimating Capital Investment
E: Power factor Applied to
Plant/Capacity ratio
To obtain order-of-magnitude estimates.
Obtained by relating the fixed-capital investment of a new process plant
(C
n
) to the fixed-capital investment of similar previously constructed
plants (C) by an exponential power ratio (x):
x
e n
R f C C =
f
e
is the cost index at the time of cost C
n
to that at the time of C.
( ) I DR f C
x
n
+ =
Closer approximation:
f is a lumped cost index factor relative to the original facility cost,
D is the direct cost for previously installed facility
I is the indirect cost for previously installed facility
f is the product of a geographic labor cost index, area labor productivity
index, and a material and equipment cost index:
Check Example (2)
Methods for Estimating Capital Investment
F: Investment cost per unit capacity
Methods for Estimating Capital Investment
G: Turnover ratio
Turnover ratios range from 0.2 to 4 (rule of
thumb for chemical industry: turnover ratio =1)
The reciprocal of this ratio is the so-called
capital ratio or the investment ratio.
investment capital - fixed
sales annual Gross
ratio Turnover =
Instructions for file EQUIPMENT COSTS accompanying Plant Design and Economics for Chemical Engineers, 5th
edition, Peters, Timmerhaus, and West
1. The opening sheet of the file EQUIPMENT COSTS is called CALCULATION PAGE. The column at the left lists equipment
types alphabetically. The names used are the same as those on the cost figures in the text. CLICK a name to SELECT an
EQUIPMENT TYPE. This brings up a panel in the upper right of the screen.
2. The upper right panel shows the text Figure # and title for the source of the cost data plus additional equipment
specifications as needed. CLICK to SELECT the APPROPRIATE LINE. This brings up a panel on the lower right.
3. In the lower right panel input REQUIRED DESIGN PARAMETERS, as requested. An equipment number is requested, and
must be supplied by the user in order for results to be transferred to the EQUIPMENT LIST. CLICK appropriate RADIO
BUTTONS, if shown, to select discreet parameters, such as operating pressure and material of construction. When entries are
complete, CLICK on CALCULATE. All calculated values are purchased costs unless otherwise noted.
4. The lower right panel shows the calculated cost of the item in $. "Add value" TRANSFERS the equipment information to the
EQUIPMENT LIST. "Display Results" shows the EQUIPMENT LIST, and "Clear Results" deletes all EQUIPMENT LIST
entries. The use of the button "Display CSV" is described below.
5. Upon clicking "Display Results," the user will be asked for a date, and then for the value of the Chemical Engineering (CE)
Plant Cost Index. The default values are Jan. 2002 and CE index = 390.4 (the basis for the calculated costs). Any appropriate
date may be entered; the CE index entered should correspond to that date; the index must be extrapolated for dates beyond
the most recently available value. Costs shown on the EQUIPMENT LIST are updated with the index provided. Only one date
and CE index may be used per session (the latest entered is applied to all costs).
6. At the top of the EQUIPMENT LIST, the user may enter project identification information. In the last column on the right of
the EQUIPMENT LIST, the user may insert additional information about the equipment, such as a dimension or design
pressure.
7. Return to the CALCULATION PAGE and continue, by repeating the foregoing steps, adding equipment until project costing
is complete.
8. The EQUIPMENT LIST can be PRINTed. WARNING: EQUIPMENT LIST is not saved when the EQUIPMENT COST file is
closed.
9. The EQUIPMENT LIST can be transferred to a spreadsheet as follows:
a. Open a notepad.
b. Click "Display CSV." Copy the resulting page and paste it in the notepad.
c. Save the notepad file with a '.csv' extension (without quotes) to a convenient location.
d. Open a spreadsheet application. The following instructions are for Excel.
e. Click 'Data' -> 'Get External Data -> 'Import Text File.'
f. Find and select the .csv file saved in step c. Make sure that you see all file types if it doesn't show up.
g. Follow the instructions of the wizard. In step 2, check 'Other' and insert '#' (without quotes) into the box next to Other.
10. To continue with an economic analysis, the total Purchased Equipment Cost may be manually entered into cell H12 on the
"Capital Inv." spreadsheet, or copied from the spreadsheet made in step 9.