Faculty of Engineering

Master Program in Hydrocarbons Processing Engineering

Subject: Process Economics

Develop a system for a mobile phone company to

track complaints by customers

Lecturer: Dr. D de Villiers

Moderator: Prof. A. Macheca

Student Name: Salvador Eugénio Mate

Maputo, May of 2019

Mission

Our mission is to develop a standardized approach, guidance, and tools that help to
track complaints by customers of Mobile Phone companies, and encourage companies
to adopt these.

We will do this by combining consulting experience and accepted best practices with the
latest techniques in System development. We will accelerate and improve project
management development and deployment activities by publishing on-demand tools,
content, and guidance online. And we will work with partners to build and nurture a
global community to achieve this mission.

Our vision

We are a dynamic organization that adheres to the best principles of customer service
in developing systems to resolving disputes independently, fairly, effectively and
efficiently.

Goals and objectives

In order to achieve our vision and mission, we are following these goals:

 Standardize and codify key software project concepts and terminology

 Ensure business goals and objectives are considered at all stages of a project

 Develop an accurate and flexible model describing key project activities

 Identify and leverage accurate insights into software project success and failure

rates and reasons

 Identify and encourage best practices which are appropriate for a particular

project

 Develop software project activity accelerators

 Develop software project risk-reducers

 Encourage a spirit of openness, transparency, integrity, trust, and continuous

learning

1
 Build and nurture a global community that shares our vision and mission

And our most important goal:

 Provably and reliably reduce the cost, effort, duration and risk of software
projects

SWOT Analysis

STRENGTH WEAKNESS
 Rapid growth and resulting strong  Relative new business
financials allow for investments in  Limited business advisory capability
capabilities and solutions to further  Lack of presence in business
differentiate and gain market share buying centres
 Good client relationship and high
customer satisfaction result in
higher repeat business
OPPORTUNITIES THREATS
 Increasing acceptance of this kind  Increasing number of companies
of products in same area
 Expansion into new geographies  Mobile Phone companies
develop their own systems to
track complaints
 2. Calculate the Payback period

Data

Discount rate 10%

Year 1 Year 2 Year 3 Year 4 Year 5

Benefits $0 $ 2000 $ 3000 $ 4000 $ 5000

Costs $ 5000 $ 1000 $ 1000 $ 1000 $ 1000

Payback period in capital budgeting refers to the period of time required for the
return on an investment to “repay” the sum of the original investment.

First let’s calculate the playback without considering the discount rate

Cumulative Cumulative Cash

Year Investment Benefits Cost Profit Cash flow
Profit flow
0 $ (-5,000) 0 0 0 0 $ (-5,000) $ (-5,000)
1 0 $ 2,000 1000 1000 1000 1000 $ (-4,000)
2 0 $ 3,000 1000 2000 3000 2000 $ (-2,000)
3 0 $ 4,000 1000 3000 6000 3000 $ 1,000
4 0 $ 5,000 1000 4000 10000 4000 $ 5,000
Total $ (5,000) $ 14,000 $ 4,000 $ 10,000 $ 5,000

Since payback period doesn’t care about time value of money, a quick look at
the Cumulative cash flows column will tell you that the payback period is between
Year 2 and Year 3, i.e. when the Cumulative cash flows exceed the Initial
investment.

This is good for an approximate idea of the payback period. But, in most likelihood,
you’ll want a more accurate number.

Payback period = No. of years before first positive cumulative cash flow + (Absolute
value of last negative cumulative cash flow / Cash flow in the year of first positive
cumulative cash flow)

Payback period = 2 + 2000/3000 =2.67 (2 Year and 35 Weeks)

 Now let’s consider de discount rate

Present
Cumulative Present Value Cumulative
Year Investment Benefits Cost Profit Cash flow Value Cash
Profit factor Cash flow
flow
0 $ (5,000) 0 0 0 0 $ (5,000) 1 $ (5,000)
$ (5,000)
1 0 $ 2,000 1000 1000 1000 1000 0.909090909 $ (4,091)
$ 909
2 0 $ 3,000 1000 2000 3000 2000 0.826446281 $ (2,438)
$ 1,653
3 0 $ 4,000 1000 3000 6000 3000 0.751314801 $ (184)
$ 2,254
4 0 $ 5,000 1000 4000 10000 4000 0.683013455 $ 2,548
$ 2,732
$
$
Total $ (5,000) $ 14,000 4,00 $ 5,000
10,000 $ 2,548
0

Now a quick look at the Cumulative cash flows column will tell you that the payback
period is between Year 3 and Year 4, i.e. when the Cumulative cash flows exceed
the Initial investment.

Payback period = 3 + 184/2732 =3.07 (3 Year and 4 Weeks)

Net present value (NPV) and internal rate of return (IRR)

Cost of capital (Tax
rate) 32%
Discount rate 10%

Year 0 1 2 3 4

Net cash flow (-5,000) 1,000 2,000 3,000 4,000

PV factor 100% 91% 83% 75% 68%
PV of net cash flow (-5,000) 909 1,653 2,254 2,732
Cumulative PV (-5,000) (-4,091) -(2,438) (-184) 2,548
Net present value 2,548

IRR (Internal Rate of

27%
Return)

The NPV is positive at the actual cost of capital (32%), so it is a good project.
5. Determine the very rough order of magnitude (VROM) capital estimate for a 200 kilo
tonnes per annum (ktpa) Chlorine plant for a company that wants to invest in the
polyvinylchloride (PVC) industry. What will this plant cost today? What will your
recommendation to the owner be?

Using Cost Curve Method

( )

Using Table in the notes:

Capacity of Plant B = 50 kilo tonnes per annum

Cost Plant B = $ 17 millions

n = 0.45

( )

What will this plant cost today? Using cost escalation Method

The cost we calculated for Chlorine plant was if were to build the plant in 1979, because
the cost was calculated using data of 1979. (Will consider CEPCI =532.9). This is from
What will the plant cost be if you are to build it today?

The latest CEPCI we have is for January 2018 (Prelim.). (CEPCI = 576.4)
6. Fixed Cost of Chemical Process

IBL cost of the plant is US$ 30million

Assume the plant is a standard plant that operates with little manual labour and is
situated in the US Gulf Coast. Thus assume there are 3 operators running the plant
each earning an average salary of $60 000 per annum.

Nothing is known about the site location. Thus assume OBL is 35% of IBL cost.

( )

For the overheads assume 3% of the revenue goes to R&D since it is a commodity
product. (Assume revenue = 4Xibl = $120 million

Assume your company developed the technology and does not need to pay a licensing
fee. Also assume capital charge (Cost of debt) for the plant = US$ 1.5 million /a