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Cost Estimation Profitability

This document outlines an assignment for a course on cost estimation and profitability. Students will work in groups to: 1) Develop a process flowsheet and estimate total capital investment for a proposed industrial plant using two methods. 2) Estimate operating costs, working capital requirements, and annual after-tax cash flows over a 20-year period. 3) Draw a cumulative cash flow diagram, calculate NPV and IRR, and assess the economic viability of the project. The assignment must be submitted as a PDF report with supporting Excel file and is worth 15% of the course grade.

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Krishna Teja
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69 views

Cost Estimation Profitability

This document outlines an assignment for a course on cost estimation and profitability. Students will work in groups to: 1) Develop a process flowsheet and estimate total capital investment for a proposed industrial plant using two methods. 2) Estimate operating costs, working capital requirements, and annual after-tax cash flows over a 20-year period. 3) Draw a cumulative cash flow diagram, calculate NPV and IRR, and assess the economic viability of the project. The assignment must be submitted as a PDF report with supporting Excel file and is worth 15% of the course grade.

Uploaded by

Krishna Teja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CHEME 4161 Cost Estimation and Profitability Assignment

The purpose of the Market Evaluation Assignment is to have students work as a team to
develop a cost estimation and profitability assessment of the product studied and the
recommendations given in the Market Evaluation assignment. However, if your group wishes
to amend the design parameters of the plant and process recommended in the Market
Evaluation assignment this is permissible provided it is first discussed with the lecturer, Greg
Fitz [[email protected]]. The objective of this assignment is to demonstrate cost
estimation and profitability skills and knowledge rather than a straight continuation from the
Market Evaluation assignment.

Assignment Key Date


Submission Date 11.50 pm Friday June 12, 2020

Description and Task

Each group will for the nominated product (the same product studied in market evaluation
Assignment) report the following:

Part I
a) Process flowsheet diagram (PFD) for a base case plant whose capacity must be of
industrial scale production.
b) Estimate of total capital investment - method 1 (e.g. scaling & inflation adjustment
from a known plant(s)).
c) Estimate of total capital investment – method 2 based upon major equipment items
in the plant based on the process flow sheet diagram.

Part II
a) Estimate of operating costs at 100% capacity utilization. Present costs in a summary
form on a detailed operating cost worksheet, which includes both annual costs and
costs per tonne product. Based on the estimates for 100%
capacity utilization, estimate the operating costs for 80% capacity utilization,
expressed in both $ per year and per tonne of product.
b) Estimate working capital requirements at 100% capacity utilization based on
an assessment of required stocks of feedstocks and finished products, and 6
weeks debtors and 6 weeks creditors. State your basis for assessing the
required stocks.
c) Estimate the annual after tax cash flows. Develop a cash flow spreadsheet for the life
of the project. Neglect the effects of inflation and make assumptions about plant
residual value. Assume:
• A plant operating life of 20 years.
• The plant takes two years to build.
• Plant operates at 80% capacity utilization in Year 3-5, and 100% capacity
utilization at Year 6 and for the remaining years of operation.
• Tax depreciation allowance (diminishing balance) of 10.0% of the fixed capital.
• Corporate tax rate of 30% of the taxable income delayed by 1 year.

Part III
a) Draw a cumulative cash flow diagram for the life of the project.
b) Assuming an after-tax discount rate of 10% calculate the NPV?
c) Calculate the project Internal Rate of Return?
d) Make a conclusion regarding the apparent viability of the project
e) Identify what you consider to be three key factors affecting the economic

CHEME 4161 Cost Estimation and Profitability Assignment Yr2020 Final 1 of 3


viability of this project, giving your reasons.
f) Identify the assumptions made in this evaluation and their potential impact on
the results.

2. Submission guidelines:

1. The assignment is to be presented in the form of a short report of 15 pages maximum


including title page and references via:
I. PDF soft copy submitted via Moodle
II. An Excel spreadsheet of the assignment calculations and cashflow should be
submitted via Moodle
2. Only one member of the group should submit the PDF version of the report and
calculation spreadsheet through TurnItIn link in Moodle no later than the nominated
submission deadline.
3. File names should use the following format:
• Group ? – Assignment Product. PDF (i.e. Group 2 – Ammonia.PDF)
• Group ? – Assignment Product.xls (i.e. Group 2 – Ammonia.xls)
4. The assignment shall be formatted for A4 using an easily readable font
5. This assignment is worth 15% of the unit marks. The report will be marked out of 15
with 12 marks allocated for Technical content and 3 marks allocated for Writing
Style. Details on the assessment criteria used and marking scheme are provided.
6. Submit at least TWO group meeting minutes with your report together. Failing to do so
will cause the loss of 2 marks for this assignment. These minutes shall include items
such as:
I. Date of meeting
II. Attendees
III. Review of any prior meeting action items and whether they have been completed
IV. Decisions made
V. Task Allocation: Task/Who it is allocated to/Due Date
VI. Date of next scheduled meeting

Assignments should be “business-like” and include a mixture of plain text, dot points to
emphasise points with clearly labelled diagrams, tables and charts. Waffle and repetition of
points or ideas should be avoided. In other words, a report in a format that is clear, easy to
read and one that your future supervisor or manager is likely to expect.

Assignment Marking Criteria

The Assignment will be marked out of 15 marks which shall be broken up into the following:

• Technical Content 12 marks


1. Process Flowsheet
2. Capital Investment Method 1
3. Capital Investment Method 2
4. Operating Cost Estimate
5. Working Capital Estimate
6. Project Cashflow
7. Accumulative Cashflow Chart
8. NPV @ 10% and IRR
9. Conclusion
10. Meeting Minutes
11. Three Key Factors affecting financial Viability
12. Identify key assumptions & their impact

CHEME 4161 Cost Estimation and Profitability Assignment Yr2020 Final 2 of 3


• Writing Style 3 marks
1. Well structured & Coherent
2. Figures & Tables
3. References used to support work

Peer Assessment

There will be an element of Peer-Assessment that will be used to moderate the marks for the
group report based upon individual contributions. The assessment criteria for both the report
and the peer-assessments are explained below in more detail.

Marks obtained from peer-assessment will be used to moderate individual marks. This
means that members of a team will not automatically receive the same mark. Failure to
submit the peer-assessment will result in a mark penalty of 25%.

The peer-assessment criteria descriptors are:

• Communication: including contribution to discussions in meetings, clarity of work


presented, communication between meetings
• Initiative: including initiating tasks, taking responsibility for tasks and motivation.
• Contribution: completing tasks, overall effort and contribution to the group work both
in terms of quality and quantity
• Organisation: including planning of activities, setting targets, keeping to deadlines
• Working in a team: including taking on different roles and collaborating with and
helping others

Each student will submit scores to assess their peers in the group with comments to justify
their scores. The scores should be independent and will not be accessible to other members
of the group. Comments serving as justification for the scores might be made available to all
group members anonymously and consequently you should aim to provide constructive,
professional comments.

Useful Data Sources

Some useful data sources are given below. If you find any useful data base, will be
useful to share them on Moodle ☺

SOME USEFUL DATA SOURCES:


Equipment Cost Data can be found in the following references
Brennan, D. (1998), Process Industry Economics, IChemE.
Brennan D.J., and Golonka, K.A., (2002). New factors for capital cost estimation in evolving
process designs, Transactions of the Institution of Chemical Engineers, 80 (Part A), 579-
586.
Peters, M.S., Timmerhaus K.D., and West, R.E., (2003), Plant Design and Economics for
Chemical Engineers, 4th ed., McGraw Hill.
Sinnott, R., and Towler, G. (2008), Chemical Engineering Design, Elsevier.
IChemE (1998), A guide to Capital Cost Estimating, 3rd ed.,
Breuer and Brennan (1994), Capital Cost Estimation of Process Equipment, Institution of
Engineers Australia.
Data sources for selected materials consumptions
Brennan D (1998), Process Industry Economics, Table 4.1
Gary JH, Handwek GE, Kaiser MJ (2007), Petroleum Refining – Technology and Economics,
5th Edition.

CHEME 4161 Cost Estimation and Profitability Assignment Yr2020 Final 3 of 3

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