16R-90

AACE Internationa Internationall Recommended Recommended Practice Practice No. No. 16R-90

CONDUCTING TECHNICAL AND ECONOMIC EVALUATIONS IN THE PROCESS AND UTILITY INDUSTRIES This recommended practice is the culmination of several years of effort by a special AACE ad hoc committee. The document has been reviewed by all concerned technical committees in AACE and was formally accepted by the AACE Board of Directors as a recommended practice in September 1990.

Copyright 2003 AACE, Inc.

AACE International Recommended Practices

Recommended Practice No. 16R-90 Conducting Technical and Economic Evaluations in the Process and Utility Industries April 1991 (*)

1. INTRODUCTION

The American Association of Cost Engineers (AACE) has had a long-standing interest in developing standards and recommended practices. The Recommended Practice described herein is for executing techno-economic evaluations of process oriented engineering projects. Most, if not all, cost engineers are involved in process-oriented techno-economic studies in the course of their work. Some concentrate in estimating only plant investment; others are involved in specific areas of cost estimating or only in financial analysis; still others, in overall economics. Adherence to a consistent set of process evaluation guidelines would improve the quality of these studies and would lower the cost to prepare them (improve productivity). There are several ways of conducting technical and economic evaluations in the process industries and within these ways there are many variations. This recommended practice was developed to reduce the variations to a manageable level. 2. CRITERIA

The AACE Recommended Practices and Standards (RPS) Committee and other standards-making organizations have stated that standards should, at the minimum, meet the dual criteria of verifiability and comparability. *The Practice was developed by an AACE ad hoc committee set up for this purpose. Members of this ad hoc committee were as follows: Fred R. Douglas, Chairman (Texaco, Inc.) Daryl Brown (Battelle Pacific Northwest Laboratories) Raymond A. Cobb (Northeast Utilities) Thomas J. George (Morgantown Energy Technology Center) John W. Hackney (Mobil Oil, deceased) Kenneth K. Humphreys (AACE Executive Director) Paul Wellman (Ashland Oil retired) Other contributors are: Morgantown Energy Technology Center, METC Fuels Cell Branch, which originally spearheaded this effort. Electric Power Research Institute (EPRI) American National Standards Institute Instit ute (ANSI), who provided information necessary to achieve consensus and who established that there was a genuine technical community interest in the Practice.

The Recommended Practice described herein was developed to meet these criteria in the following manner: • Verifiability - The technical and economic evaluation should be conducted and reported such that all

aspects of the study may be independently verified with reasonable effort.



Recommended Practice No. 16R-90 Conducting Technical and Economic Evaluations in the Process and Utility Industries April 1991 (*)

1. INTRODUCTION

The American Association of Cost Engineers (AACE) has had a long-standing interest in developing standards and recommended practices. The Recommended Practice described herein is for executing techno-economic evaluations of process oriented engineering projects. Most, if not all, cost engineers are involved in process-oriented techno-economic studies in the course of their work. Some concentrate in estimating only plant investment; others are involved in specific areas of cost estimating or only in financial analysis; still others, in overall economics. Adherence to a consistent set of process evaluation guidelines would improve the quality of these studies and would lower the cost to prepare them (improve productivity). There are several ways of conducting technical and economic evaluations in the process industries and within these ways there are many variations. This recommended practice was developed to reduce the variations to a manageable level. 2. CRITERIA

The AACE Recommended Practices and Standards (RPS) Committee and other standards-making organizations have stated that standards should, at the minimum, meet the dual criteria of verifiability and comparability. *The Practice was developed by an AACE ad hoc committee set up for this purpose. Members of this ad hoc committee were as follows: Fred R. Douglas, Chairman (Texaco, Inc.) Daryl Brown (Battelle Pacific Northwest Laboratories) Raymond A. Cobb (Northeast Utilities) Thomas J. George (Morgantown Energy Technology Center) John W. Hackney (Mobil Oil, deceased) Kenneth K. Humphreys (AACE Executive Director) Paul Wellman (Ashland Oil retired) Other contributors are: Morgantown Energy Technology Center, METC Fuels Cell Branch, which originally spearheaded this effort. Electric Power Research Institute (EPRI) American National Standards Institute Instit ute (ANSI), who provided information necessary to achieve consensus and who established that there was a genuine technical community interest in the Practice.

The Recommended Practice described herein was developed to meet these criteria in the following manner: • Verifiability - The technical and economic evaluation should be conducted and reported such that all

aspects of the study may be independently verified with reasonable effort.



Conducting Technical and Economic Evaluations in the Process and Utilities Industries

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• Comparability - The evaluation should be conducted and reported in ways that assure that changes

in assumptions are readily and consistently evaluated. Also maximized is the ease of of comparing any or all aspects of the subject study with any other study conducted under the aegis of the recommended practice. In addition to the goals of verifiability and comparability, the Practice should facilitate evaluations that are accurate and correct. correct. Thus another criteria for this Practice is: • Accuracy - The evaluation should be conducted in a manner that yields technically and

economically correct results within the levels of uncertainty corresponding to the level of detail required. This recommended practice is not intended to replace existing procedures but rather to provide guidelines such that the above criteria may be met. Different industries (and different companies within these industries) conduct technical and economic studies in different ways. This recommended practice is largely oriented to the chemical process industries although most of the methods outlined may be adapted to other industries. This recommended practice was largely written for budget-type estimates defined by AACE as having a +30% to -15% accuracy. It is primarily intended for those companies seeking preliminary quotations from contractors such that all are on the same basis and may be readily compared. Others could find the practice useful to conduct their own preliminary evaluations in a consistent manner. Still others could find the practice useful within their own company and for publishing or other external purposes (such as for sales discussions). AACE feels that the collaboration collabo ration of individuals on this project who represent the private sector, s ector, government and not-for-profit institutions have made an impressive contribution to the development of this Practice. 3. SCOPE

3.1

This practice establishes a consistent procedure for conducting budget-type technical and economic evaluations for use by the process industries such that ease of comparability and verification are of paramount importance.

3.2

Mass and energy balances, composition and properties of all streams, equipment specifications, and performance criteria are all developed and reported according to a recommended format.

3.3

Direct costs of plant sections are developed and reported according to recommended procedures and formats.

3.4

Other costs, such as foundations, structures, insulation, instruments, etc. are established by recommended factors for each type of process or type of equipment.

3.5

Field indirects, engineering, overhead and administrative costs are determined by factors herein recommended.




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3.6

Operating costs are developed based on estimates of raw material, utility and operating labor requirements. Other elements of operating costs such as maintenance and overhead are based on factors recommended herein.

3.7

A financial analysis is conducted based upon prescribed procedures.

3.8

A sensitivity study may be conducted to determine the effects of changes in key variables and assumptions.

3.9

A recommended reporting format is provided to be sure that all information required for verifiability and comparability is included. Also included are listings of deviations from this established practice.

4. APPLICABLE DOCUMENTS AND REFERENCES

4.1

AACE, Cost Engineers' Notebook.

4.2

AACE Metropolitan New York Section, AACE Transactions, "The Module Estimating Technique as an Aid in Developing Plant Capital Costs," 1962.

4.3

Brown, D. R. et al, An Assessment Methodology for Thermal Energy Storage Evaluation , Prepared for U.S. Department of Energy by Battelle Memorial Institute, Pacific Northwest Laboratory, November, 1987.

4.4

Electric Power Research Institute (EPRI), TAG - Technical Assessment Guide, Vol. 1, Electricity Supply - 1989; Vol. 2, Electricity End-Use - Part 1, 1987, Parts 2 & 3, 1988; Vol. 3, Fundamentals and Methods, Supply - 1987; Vol. 4, Fundamentals and End-Use - 1987, EPRI P-4463-SR, Palo Alto, CA.

4.5

Guthrie, K. M., Process Plant Estimating Evaluation and Control , Craftsman Book Company of America, Solana Beach, CA, 1974.

4.6

Humphreys, K. K. and P. Wellman, Basic Cost Engineering, 2nd ed., Marcel Dekker, Inc., New York, 1987.

4.7

Peters, M. S. and K. D. Timmerhaus, Plant Design and Economics for Chemical Engineers, 3rd ed, McGraw-Hill Book Co., New York 1980.

4.8

Weinheimer, W. R., Cost Engineers' Notebook, "Percent Your Indirect Field Costs," Revision 1 dated November 1984

4.9

Wessell, H. E., "New Graph Correlates Operating Labor Data for Chemical Processes," Chemical Engineering, July 1952, p. 209.

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5. DEFINITIONS

5.1

For the purpose of this document the following terms are defined, (other terms used are defined in the AACE Standard No. 10S-90, "Cost Engineering Terminology).




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5.1.1

ADR (Asset Depreciation Range) Class Life. Approximate ranges of useful equipment life established by the Internal Revenue Service for tax purposes.

5.1.2

Depreciable Life. The legal capital cost recovery period established by the Modified Accelerated Cost Recovery System (MACRS). MACRS and its predecessor technique ACRS, Accelerated Cost Recover y System, are depreciation techniques mandated by U.S. tax law.

5.1.3

Measure of Merit. An economic measurement (e.g., present value, interest rate of return) used to determine the economic viability of a project. Syn. Figure of Merit

5.1.4

Inflation. A rise in the general price level, usually expressed as a percentage rate. "Inflation" is usually used to describe the general change in prices for all goods and services. "Escalation" usually refers to specific items.

5.1.5

Internal Rate of Return. The compound rate of interest that, when used to discount study period costs and benefits of a project, will make the two equal, i.e., the discount rate that results in a net present value of zero.

5.1.6

Levelized (Annualized) Production Cost. A unit cost equal to the annualized cost of production divided by the annual production rate. The annualized cost, recurring every year for the life of a project, has a present value equivalent to the present value of all project costs. When the discount rate used is the after-tax weighted cost of capital, the levelized production cost is similar to the revenue requirements used by the utility companies, and the cost of capital is considered part of the cost of production.

5.1.7

Net Present Value. The sum of all project cash flows, both negative and positive, discounted to the present time.

5.1.8

Nominal (Current) Dollars. Dollars of purchasing power in which actual prices are stated, including inflation or deflation. In the absence of inflation or deflation, current dollars equal constant dollars.

5.1.9

Overnight Cost. A measurement of capital investment that excludes any interest expense or escalation of costs that may occur during the construction period, as if the project had literally been built overnight.

5.1.10

Payoff Period, Discounted. The length of time required for the cumulative present value of after-tax cash flows of a project to become positive.

5.1.11

Price Year. The reference year for a cost estimate or cash flow. For example, a capital cost estimate might be based on 1990 dollars or some other year's dollars.

5.1.12

Profitability Ratio. The net present value of a project divided by the present value of the initial capital investment.

5.1.13

Real (Constant) Dollars. Dollars of uniform purchasing power exclusive of general inflation or deflation. Constant dollars are tied to a reference year.




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6. SUMMARY OF RECOMMENDED PRACTICE

The following sections are organized as follows: • Significance, use and limitations of this Recommended Practice • General description of the step-by-step procedures in using the Practice • Objectives, alternatives, constraints and assumptions • Data and other requirements • Detailed description of computations necessary to conduct the step-by-step procedures • Summary of applications and limitations of methods • Summary of report procedure • Appendices containing tables and charts to be used in the procedures

7. SIGNIFICANCE, USE AND LIMITATIONS

7.1

The significance of this Recommended Practice is that it provides a comprehensive yet consistent procedure for taking into account all the technical information needed to develop a budget-type estimate as well as all the relevant costs necessary to evaluate the economic performance of a process being evaluated.

7.2

The method is intended to compare readily and in a consistent manner the economics of competing processes as well as the economic viability of individual processes. The consistency of the method, providing verifiability and comparability, makes it particularly useful for publishing results or for other external purposes such as for sales discussions. The method may also be used in analyzing possible cost reductions in existing plants, for incremental studies, to design and cost individual components of projects or for optimizing purposes. In short, the method has applications wherever conceptual, preliminary or budget-type techno-economic studies are required. The method is not intended for definitive-type estimates, although some parts of the practice may be adapted for this use (particularly the financial analysis model).

7.3

The practice is not intended to replace existing design and cost procedures but rather to provide guidelines such that the criteria of verifiability and comparability in the transmission of results to others may be readily met. The words, "This study was performed using the AACE Recommended Practice" should provide instant information as to exactly what was done and exactly how it was done.

8. PROCEDURES (See Section 12 for detailed description)

8.1

Identify Objectives, Alternatives and Assumptions Necessary to Conduct the Study. The first step in the procedure is to establish the specific objectives of the study, identify alternative ways of accomplishing these objectives and bring out any constraints that limit the resultant analysis.

8.2

Develop the Design. A process plant size is first established based on market considerations. Flow sheets showing the major equipment required with detailed material and energy balances around each equipment item are developed. Standard engineering practice as outlined in such texts as Peters & Timmerhaus (ref. 4.7) are followed using a common set of recommended design premises.




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8.3

Develop Equipment Specifications. Major equipment components are sized according to the requirements of the process flow sheet and material and energy balances. Major equipment items are specified sufficiently to conduct budget-type costing. For example, in a budget-type estimate for a heat exchanger, only the surface area, required type of exchanger and materials of construction are needed to develop the cost. Such details as the tube pitch and length of tubes are helpful but are not necessary for a budget estimate of the cost.

8.4

Establish Total Capital Requirement. Plant costs are built up by first establishing the cost of each equipment item delivered to the plant site. Material and labor costs to set and install equipment are next estimated using recommended factors. Total plant costs are established by adding field indirects, engineering costs, overhead and administration based on recommended factors. Finally, total capital requirement is established by adding in such costs as pre-production or start-up costs, inventory capital, initial chemicals and catalyst charges and land.

8.5

Estimate Plant Operating Cost. Operating labor, utility and chemical requirements are first estimated from the design data and from these total operating costs are established by means of recommended factors.

8.6

Conduct Financial Analysis. Detailed cash flows (year-by-year) are first established based on recommended procedures. One or more of a set of measures-of-merit techniques are selected generally involving discounted cash flow in order to determine economic viability.

8.7

Conduct Sensitivity Study. A set of key variables and assumptions are selected and the effects of changes in these on the previous results are determined.

8.8

Prepare Report. All the findings and the basis for them are documented by a set of recommended tables. Discussions of the results are included in the report. All deviations from the recommended practice are documented and reasons for the changes from those recommended are discussed. The above steps are described in more detail in Section 12.

9. OBJECTIVES, ALTERNATIVES AND CONSTRAINTS OF THE RECOMMENDED PRACTICE

The objective of this Technical and Economic Practice is to provide a consistent and reliable guide to performing budget-type estimates such that communication of results to others is readily achieved with clear and unequivocal understanding of what was and what was not included in the study. The criteria of verifiability and comparability are the goals to be met. The method is primarily aimed at generating budget-type estimates as defined by AACE having accuracy limits of +30% to -15%. The method is also adaptable to order-of-magnitude estimates. The method is aimed at the process industries and those doing business with them, but here again, other industries may find it useful. The method does not detail rigid engineering design techniques. These are more than adequately covered in plant design texts and other sources. Major equipment components are only specified sufficiently to conduct budget-type estimates. Certain factors (or ranges of factors) in the costing procedure are specified for the purpose of consistency. Recommended procedures for year-by-year cash




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flows and financial analyses are provided. Here again, deviations are allowed as long as they are specified. Finally, individual sections of the practice, such as the operating cost routine or the financial analysis procedure, may be followed as long as it is made clear as to what is being done. 10. ASSUMPTIONS AND DEVIATIONS FROM RECOMMENDED PRACTICE

The primary assumption in using the recommended practice is that the process has been developed enough so that sufficient detail is available to conduct the study for a budget-type estimate that will result in an accuracy range of +30% to -15%. Reliable data for developing mass and energy balances around major equipment items should be available. A sensitivity study, described below, is to be conducted on those items for which insufficient data (including costs) are available or for which questionable assumptions are made. The reliability of the data, as well as other factors, may necessitate deviating from the recommended practice. Deviations from the recommended practice must be well documented in the report. 11. DATA REQUIREMENTS

Some of the data needed in the specific calculations have been discussed and will also be covered in the following sections. Briefly, these are summarized as follows: 11.1

Plant Design. Material balance, energy balance, stream compositions and quality, flow sheets showing plant configuration.

11.2

Equipment Specifications. Design of individual equipment to the extent necessary for costing; materials of construction required; number of equipment items necessary; sparing philosophy used; utility requirements; etc.

11.3

Total Capital Requirements. Factors to be applied if not using recommended ones; cost curves and data (including utility investment costs); construction labor rates.

11.4

Operating Costs. Factors required if not using recommended ones; operating labor requirements; annual utility and chemical requirements; raw material and byproduct unit costs and quantity requirements.

11.5

Financial Analysis. Factors required if not using recommended practice factors; timing of cash flows; cost of capital; discount factors; inflation rates for operating labor; investment capital; power rates, chemical and catalyst rates.

12. COMPUTATION PROCEDURES

12.1 Identify the Objectives, Alternatives and Assumptions. It is first necessary to establish the specific objectives for the technical economic study. For example, two or more design changes may be evaluated to determine which has the best economic potential in the overall scheme. Thus, a contractor could optimize the design to produce the desired end result and thus be competitive with other contractors when opening discussions with a client. The client might be evaluating two or more processes from different contractors to determine which, if any, are worthy of further consideration. If all the studies are done in a consistent manner as outlined in this practice, then comparisons are possible.




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It is also necessary to establish basic assumptions in applying the practice to the objective desired. The comprehensiveness of the study will depend on the degree of complexity of the problem, the intended purpose of the evaluation, the cost and resources available to perform the evaluation, and the impact, both monetary and non-monetary, contingent on the investment decision. Each of these may require different assumptions and different detail within the budget-type estimate. Assumptions made with respect to engineering design and bare equipment costs should be carefully considered. An error in establishing bare equipment costs can be magnified three to five times by the time the final results are estimated. Deviations from the recommended practice should be carefully documented and explained. Keep in mind that one of the main objectives of the practice is one of communicating to others exactly what is and what is not included in the study so that verification and comparability of results are readily obtained. 12.2 Develop the Design. This section includes a description of the necessary information to define properly the process under consideration. This section also defines the recommended design premises to be used in the study. 12.2.1

Process Definition -- Budget estimates require a detailed process flow diagram and stream summaries incorporating the following data: a. b. c. d.

Raw material feed rates and composition of all streams. Temperature and pressure of all streams. Residence or reaction time for all reactors. All streams should be shown, including intermediate, recycle and main.

Mass and energy balances should be conducted according to normally acceptable engineering practices and using the design premises outlined below. It is not necessary to document the complete design unit but basic performance design criteria on which conclusions rest should be documented. In most cases, all that would be necessary are the flow diagrams outlined above, the equipment list (described below) and deviations from the design premises (described below). Before developing the process flow diagrams, a plant size should be established based on marketing conditions, expected share of market, economies of scale and other factors. In comparing alternatives, plant size (output) should be kept constant except in those cases where plant size is being evaluated in a sensitivity study. 12.2.2

Define Plant Sections and Sub-sections -- As the process is being developed, care should be taken to establish logical plant section names and the groups of equipment to be contained within those sections. Even within the same organization, slight variations in practice can complicate future study-to-study comparisons (e.g., does heat exchange equipment go in its own section, in the section that produces the waste heat, or in the section that benefits from the heat exchanger product?). If executed with care, plant section definition will aid the ease of comparing studies, as for example, the situation when the studies are executed by different entities for a single sponsor.




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12.3 Develop Equipment Specifications. Major equipment items are sized according to the requirements of the process flow-sheets and material and energy balances. The items are specified sufficiently to conduct budget-type costing. Major equipment items in a process plant include heat exchangers, columns, reactors and other vessels, pumps, compressors, process furnaces, direct-fired heaters, miscellaneous equipment, specialized equipment, etc. A list of all major equipment items with design parameters specified should be included as part of the report. Examples of the degree of documentation that should be included are shown in Table 1. Appendix A provides a listing of optimum design and costing specifications for many types of equipment. Table 1. Example of a Detailed Equipment List Showing Parameters Necessary for Cost Estimation Amine contactor (4 required) Size: Top, 9' ID X 29'6" high; bottom, 12' ID X 35'6" high Operating pressure: 200 psig Operating temperature: 150°F Amine regenerator (2 required) Size: 19' ID X 84' high Operating pressure: 50 psig Operating temperature: 260°F Caustic precontactor (2 req'd) Size: 2' ID X 24' high Operating pressure: 180 psig Operating temperature: 120°F Caustic contactor (2 required) Size: 4'6" ID X 61' high Operating pressure: 180 psig Operating temperature: 120°F

Amine knockout drum (2 required) Size: 12' ID X 16'6" high Operating pressure: 180 psig Operating temperature: 120°F

Sand filters (4 required) Size: 9' ID X 15' high Operating pressure: 50 psig Operating temperature: 185°F

Amine flash drum (2 required) Size: 10' ID X 30' high Operating pressure: 60 psig Operating temperature: 150°F

Carbon filters (4 required) Size: 9' ID X 15' high Operating pressure: 50 psig Operating temperature: 185°F

Regenerator reflux drum (2 req) Size: 9' ID X 11' high Operating pressure: 50 psig Operating temperature: 100°F Amine sump (2 required) Size: 8' ID X 8' high Operating pressure: atmospheric Operating temperature: 160°F

Lean amine pumps (3 required, including 1 spare) Type: centrifugal Capacity: 1,475 gpm Drive: motor Hp: 325 Amine filter pump (2 required) Type: centrifugal Capacity: 620 gpm Drive: motor Hp: 25 Semi-lean amine pump (5 required, including 1 spare) Type: centrifugal Capacity: 2.640 gpm Drive: motor Hp: 900

12.3.1

Design Philosophy and Equipment Sparing -- Conventional commercially available equipment should be selected wherever possible. Deviations and special design equipment should be documented. Sparing should be done to provide 90% availability exclusive of planned maintenance unless prior experience or system engineering studies have indicated that another level of sparing is appropriate for the process being studied.

12.4 Establish Total Capital Requirement 12.4.1

Introduction -- Total Capital Requirements are built up by first establishing the cost of purchased delivered equipment items and then applying factors for: handling and setting; commodity material and labor costs; field indirects; engineering; overhead and administration; contingencies.




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Finally, factors for start-up costs, working capital, prepaid royalties, initial catalyst and chemical charges, and land are applied to give the total capital requirement. The components are summarized in Table B-1 in Appendix B. Details are provided in the following sections. 12.4.2

Purchased Equipment Costs -- Once the major equipment list has been specified, the bare delivered equipment cost is next developed (see Table 1 for examples). These "bare" equipment costs comprise 18% to 35% of the total costs of the typical processing plant and an error in estimating these costs could be magnified three to five times in the final estimate. Thus, the design and costing of this equipment requires a great deal of care. A piece of equipment is required to receive, hold, pump, com press, and release material. Some equipment can be identified as "off-the-shelf items." These are manufactured in large quantities and are readily available since the demand for such items is high. Included in this category are pumps, compressors, heat exchangers, and crushing and grinding equipment. Other items are especially designed specifically for a particular application, as in the case of a new or developing process, and thus must be manufactured or fabricated as needed. The cost of equipment can be obtained from the following: 1. Firm bids and quotations 2. Previous project equipment costs 3. Published equipment cost data 4. Preliminary vendor quotations 5. Scaleup of data for similar equipment of other capacities. Table B-2 (in Appendix B) shows how the purchased equipment costs should be summarized. Also shown in this table is the utility summary for each piece of equipment necessary for developing capital costs and operating costs, as well as the chemical costs summary for each piece of equipment necessary for developing operating costs.

12.4.3

Direct Costs -- Direct capital costs are defined as shown by the following: Component: Delivered equipment costs Labor for handling and placing bare equipment Installation material Associated Installation labor Total Direct Material Total Direct Labor Total Direct Capital

Material: a

Labor: b

c d a+c b+d a+b+c+d

Handling and placing equipment costs are those costs associated with unloading, uncrating and physically placing the equipment at its final resting place, mechanical connection alignment, storage, inspection, etc. These costs (b) can be estimated by using factors given in terms of labor cost as a percentage of delivered equipment cost or by labor hours for each type of major equipment multiplied by dollars per hour labor cost of placing equipment.




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The installation material and labor components consist of the following nine bulk items: Foundations, structures, buildings, piping, instrumentation, insulation, electrical, painting, and miscellaneous. The bulk material costs for each installation item (c) are established by factors applied to total delivered cost of major equipment (pumps, heat exchangers, etc.). Associated labor costs (d) are established by factors applied to each material category. The system is one in which all items involved in installing equipment and placing it into operable condition are factored. These factors are called "distributive percentage factors." Table B-3 lists such factors for six specific types of installations and for four different generic plant types: (1) solids, (2) solids-gas, (3) gas processes, (4) liquid and liquid-solids. Temperature and pressure are also taken into account. The break point for temperature is 400 and for pressure it is 150 psig. All major items required for the complete installation are considered. The delivered equipment cost is used as the base for the calculations involved. The percentage factor is applied to establish the installation material cost (c). Then the installation material cost is used as a base for determining the labor cost involved (d). As an example, a gas-to-gas heat exchanger has a delivered price of $10,000 and is designated to operate at 800F and at a pressure of 125 psi. Table 2 illustrates the use of these factors for putting in the heat exchanger in an operable mode. To install any type of equipment, provision must be made for the items included in Table B3. However, the labor cost of physically handling and placing the unit (b) must also be determined. Table B-4 lists the labor factors involved in handling and placing various types of equipment. These factors were developed from a series of detailed estimates and represent average values. (In the absence of other data, an average value of 20 percent of delivered equipment cost may be used as an approximation for estimating bare equipment installation labor. It should be noted, however, that this factor can vary over a range of 15 to 35 percent or more.) Table 2 -- Typical Costs for Placing Heat Exchanger in Operable Mode (Bare Equipment Cost=$10,000) Material $ 600

Labor $ 800

Structures

500

250

Buildings

300

300

Insulation

200

300

Instruments

700

525

Electrical

600

240

4,000

2,000

50

150

400

320

$7,350

$4,885

Foundations

Piping Painting Miscellaneous Total

The total cost of installing a piece of equipment, using this estimating technique, then equals the bare equipment cost plus the handling and placing labor cost plus the materials Copyright 2003 AACE, Inc.



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and labor costs as determined using the distributive percentage factors. Thus in the heat exchanger example (Table 2) the total installed cost equals $10,000 (bare cost) + $10,000 x 0.20 (handling and placing labor cost) + $7,350 (materials cost) + $4,885 (labor cost) or a total of $24,235. Table B-3 is intended to set some guidelines for determination of both materials and field labor associated with bulk accounts. The material-labor split is important if any attempt is made to estimate field labor requirements. Using the first numerical column as an example, the 4 indicates 4% of the "bare equipment" cost as the factor for foundation material (concrete, rebar), etc. The 133 indicates that 133% of the above 4% should be used as the labor to install the foundations or a total percentage of 9.32% of the "bare equipment" costs for foundations. As is indicated at the top of the column, this is for a solids handling system. This represents only one method of estimating labor; for example, work-hours per yard of concrete times an appropriate labor rate could well be used for the labor component. Sometimes the factors used include both the materials and labor; however, treating materials and labor separately allows the estimator to make an additional check on the reasonableness of the estimate. The credibility of studies that do not document costs to at least the level of detail shown in Table 3 will always be in question. Other important cost considerations in a factored estimate are the work-hours allowed for setting the "bare equipment," the field indirects, engineering, overhead and administration, a contingency, and a contractor's fee. Each of these will be discussed separately. Work-hours to set equipment are always derived from historical data and/or from the experience of the engineers and estimators on the project. Engineering and construction firms maintain work-hour tables for setting different types of equipment according to weight, horsepower (rotating equipment), and so on. Percentage factors such as those given in Table B-4 may also be used, but vary widely from 5% to 35% of the "bare equipment" cost depending on the difficulty of the work. Although in the overall estimate this allowance is rarely an overriding consideration, these costs should not be omitted. Table 4 provides a summary direct capital cost estimating procedure. Table 3 gives an example of the use of the procedures.




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Table 3. Typical Direct Capital Cost Summary DATE: 08/06/84 Equipment and Installation BY: P. Wellman TITLE: ABC Alcohol Company REPORT: Ethanol UNIT: Fermentation ITEM Quantity Material, dollars Fermenter 8 904,800 Fermenter agitator 8 112,000 Fermenter cooler 4 519,200 Fermenter circ. pump 8 170,400 Fermenter cleaner 8 16,000 Beer well 1 195,800 Beer well agitator 2 28,000 Beer well cleaner 1 3,000 Sterilant scale 1 1,400 Sterilant pump 1 1,100 Sterilant tank 1 14,500 Sterilization pump 1 18,500 Sterilant tank agitator 1 1,300 Distillation feed pump 2 44,000 CO2 Offgas scrubber 1 55,400 Scrubber pump 1 3,200 Scrubber blower 1 30,000 Scrubber chiller 1 30,000 2,148,600 Foundations 96,700 Structures 85,900 Buildings 85,900 Insulation 21,500 Instrumentation 107,400 Electrical 128,900 Piping 537,200 Painting 7,500 Miscellaneous 85,900 1,158,000 Total Direct 3,306,600


Labor, dollars 90,500 11,200 51,900 25,600 1,600 19,600 2,800 300 100 200 1,500 2,800 100 6,700 5,500 500 4,500 3,000 228,400 128,600 43,000 85,900 32,300 43,000 96,700 134,300 25,800 68,700 658,300 886,700

Total cost, dollars

2,377,00

1,816,300 4,193,300



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Table 4. Direct Capital Cost Summary Cost Item (dollars) 1. 2. 3. 4. 5.

............... ..(Individual.. ...equipment... ....items)..... ............... ............... ............... ............... Subtotals......... Foundations....... Structures........ Buildings......... Insulation........ Instrumental...... Electrical........ Piping............ Painting.......... Miscellaneous..... Total Direct....

12.4.4

Quantity (Delivered equipment cost)

.......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ..........

Cost

(dollars)

Material

Labor See labor factors for bare equipment

Total

________ Line 1-A

________ Line 1-B

_________ Line 1

Base on line 1-A (see Table B-3)

Base on individual material items (see Table B-3) _______ Line 2-B

_______ Line 2

_______ Line 1-A

Indirect Field Costs -- Indirect costs are defined by AACE Standard Terminology (ref. 4.1) as those "costs which do not become a final part of the installation but which are required for the orderly completion of the installation . . ." The AACE Cost Engineers' Notebook has several papers that more completely define indirect costs. One such paper prepared by W. R. Weinheimer (ref. 4.8) describes the elements in indirect field costs including indirect field labor, construction support, labor benefits and equipment and tools. Table B-5, shows a breakdown of these categories as used in this practice. Weinheimer suggests that the percentage factors to be used vary inversely as the magnitude of the direct plant labor. Figure B-1 follows this suggestion and is based on $20 per hour direct field labor. The resultant indirect field costs must be adjusted to the actual dollars per workhour prevailing at the time of the estimate. Note that the major category left out of Figure B-1 is that of labor benefits which include craft fringe benefits, travel necessary, construction camp and insurance and taxes of all labor, both direct and indirect. Most labor benefits are generally directly proportional to total labor costs. In the absence of data to the contrary, it is recommended that benefits be estimated at 35% of total direct and indirect labor. The indirect field labor component of total indirect costs is also shown on Figure B-1. Two other categories left out of Figure B-1 are labor and materials for equipment servicing and small tools. It is assumed that the equipment servicing is included in the indirect field costs estimated above. Small tools, below $500 per tool, range from about 5% for small projects (up to $300,000 of direct labor); 3.5% for $300,000 to $3,000,000 direct labor; and 2% for over $3,000,000 direct labor. An example of how to calculate Indirect Field Costs as a function of Direct Field Labor is given in Table B-6.

12.4.5

Total Plant Cost -- Referring to Table B-1, the total plant cost component of total capital requirements is the sum of process capital (direct and indirect costs as described in




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Sections 12.4.3 and 12.4.4) plus general facilities capital, plus home office overhead and fee, plus contingencies. The Process Capital is to be divided into major plant sections (e.g., pretreatment, reaction, separation, plant utilities, etc.). The process capital for each plant section should be broken down as shown in Table B-7. The other categories of Total Plant Cost are discussed below. General Facilities: These include roads, fences, shops, laboratories, office buildings, etc., and are generally in the range of 5% to 20% of Total Process Capital. For the purpose of this practice, assume 15% unless there is some underlying reason to assume otherwise. Documentation should be provided. Home Office Overhead and Fee: These usually range from 7% to 15% of the process capital. This practice recommends 10% for contractor and 5% for client costs for a total of 15%. Contingencies: This Recommended Practice assumes two types of contingencies, process and project, and is based on EPRI (ref. 4.4) philosophy. Contingency covers expected omissions and unforeseen costs caused by the lack of complete engineering or incomplete scope of work. The process contingency factor is applied in an effort to quantify the uncertainty in the technical performance due to limited design data. EPRI (ref. 4.4) provides the following guidelines to aid in assigning process contingency allowances to various sections of the plant. State of Technology Development New concept with limited data Concept with bench-scale data Small pilot plant data Full-size modules have been operated Process is used commercially

Process Contingency Allowances as Percentages of Total Process Capital Cost 40+ 30% to 70% 20% to 35% 5% to 20% 0% to 10%

Generally, budget-type estimates are made after there is at least small pilot-plant data available. Thus, a factor of 25% of the total process capital cost is recommended for those sections of the plant designed on the basis of limited data. For example, utility design and costs are usually based on well-known data so that the process contingency factor is relatively low (say 5%). The larger chance of error would be in the size of each utility (which is related to the process utility requirements), not the design of the utility plant. A factor of 25% would be applied to the reactor section if limited engineering data were available. Table B-7 was designed to handle different process contingencies for different sections of the plant. Project Contingency is included to cover the costs that would result if a detailed-type costing was followed as in a definitive-type study. For a budget-type estimate, project contingency would range from 15% to 30%. We recommend a factor of 25% of Total Process Capital plus Home Office Overhead and Fees plus Process Contingencies. The contingency factors actually used should be documented in the report.




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12.4.6

Other Components of Total Capital Requirements -- As shown by Table B-1 these include the following: Total Plant Cost Prepaid Royalties Start-up and Other Pre-production Costs Working Capital Spare Parts Initial Catalyst and Chemicals Land Total Plant Cost was discussed in previous sections. The remaining components of Total Capital Requirements are discussed below.

12.4.7

Prepaid Royalties -- Royalty charges on portions of the plant are usually levied for proprietary processes. A value of 0.5 of 1% of the process capital involved is usually used. If only portions of the plant are subjected to royalty, Table B-7 may be extended to include another column of numbers. This practice recommends that a factor of 0.5 of 1% be used on Total Process Capital for Prepaid Royalties.

12.4.8

Start-up Costs -- These costs are incurred for expenses for plant start-up such as operator training, extra maintenance, plant modifications and inefficient operation. For this Practice, the following are recommended: a. One month of total annual operating cost at full capacity. b. An additional 25% of total fuel (including fuel in steam) at full capacity for one month operation. c.

Two percent (2%) of Total Plant Costs to cover expected changes and modifications of equipment to reach full capacity.

d. No credit for byproducts. The method of estimating the annual operating costs needed above is shown in Section 12.5. 12.4.9

Working Capital -- Working capital is needed to meet the everyday needs of operating the plant, such as payroll, maintenance, the purchase and storage of chemicals, etc. A partial list of items included in working capital is: • • • • •

Process inventory, including raw materials, fuels, in-process materials, finished product not sold. Supplies inventory. Accounts receivable. Current liabilities. Other current assets including cash, bank deposits and government securities needed for wages, materials and other accounts payable.

For this Practice, two months of total annual operating costs are recommended (see Section 12.5 for estimation of total annual operating costs).




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12.4.10

Spare Parts -- This item is needed to cover the need for an initial inventory of critical parts to minimize extensive shut-downs for repairs. An allowance of 0.5 of 1% total plant cost is recommended.

12.4.11

Initial Catalyst and Chemicals -- The initial costs of these items actually contained in the process equipment (but not in storage, since this is covered in Working Capital) should be included. The basis for this will vary, depending on the process and the unit costs. Documentation of this item should be included in the report.

12.4.12

Land -- Land costs vary greatly and are very site-specific. Prevailing land costs in the proposed plant area must be locally determined.

12.5

Establish Total Annual Operating Costs. For the purpose of this Recommended Practice, operating costs will be considered as including: Raw materials less byproducts Utilities and chemicals Total labor (direct operating, supervision, maintenance and indirect) Other costs Table B-8, shows the computations necessary to arrive at the total annual costs. Components of the annual operating costs are discussed below.

12.5.1

Raw Materials Less Byproducts -- These are commodities that are converted in the process and appear in some form in the final product or byproduct. They may be purchased or sold in the open market or they may be available or sold captively. Current prices are listed in the trade journals (such as Chemical Marketing Reporter) or actual quotations may be available for those commodities obtainable in the open market. For captive markets, sales price could be assumed if the market would not be affected by the additional volume. If there is a glut on the market, the manufacturer could assume an operating cost for the commodity or even an incremental cost if below-capacity plants are involved. Since there are many ramifications involved in these assumptions, the actual market price should be used in this practice. Any deviations should be documented. It is stressed that most often, the cost of raw materials represent the largest component of the operating cost. Extreme care should be taken in arriving at the annual cost of this component. In computing the annual cost of this component, the annual consumption (or manufacture in the case of byproducts) is taken from the flow sheets described earlier and multiplied by the $/unit commodity market price. In many cases, material balance calculation errors affect operating costs more than they do plant costs, so care should be taken in the development of the material balance. Complete documentation of yields and unit prices should be provided in the report.

12.5.2

Utilities and Chemicals -- Utilities are made up of fuel, net steam (required steam less process-produced steam), power and water. It is assumed in this practice that the only purchased utilities are power and fuel. All steam facilities, power distribution facilities and water treatment facilities are to be included in the plant investment sections as are waste water and waste product disposal costs. Operating costs of utilities, except for fuel and power, are assumed negligible. The steam annual cost represents mostly fuel (at the price assumed for fuel in the fuel component of utilities and chemicals).




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Utility and chemical requirements for each piece of major equipment are accounted for in Table B-2. The last page of Table B-2 should show the totals of all the utilities and chemicals. The power to operate each utility is shown on the last line of this table. The total of the power required for the major equipment and the power required for the utilities is used in the calculation of annual power cost in Table B-8. 12.5.3

Direct Operating Labor -- An estimate of the workers per shift required to operate each section of the plant is to be made based on judgement and experience. The cost of operating labor is often not a major component of the total manufacturing cost, but since it is used to estimate other components, it should be estimated as carefully as possible using existing plant operating records for similar type plants. As a guide for estimating direct operating labor, a factor suggested by Wessel (ref. 4.9) may be used. Using an average factor of 50 daily workhours per primary operational steps, such as distillation, drying, filtration, etc., and multiplying this factor by the number of operational steps provides the daily workhours required. Multiplying this product by the number of hours in a calendar year (8,760) and the average hourly labor rate gives the total direct annual operating labor costs for plants of 100 tons per day capacity. For other capacities, Wessel recommends applying a 0.25 power factor to the ratio of the capacity. Documentation of the method used (experience, Wessel, other) should be provided.

12.5.4

Maintenance, Supervision, Overhead, etc. -- Table B-8, shows the other components and the factors recommended to calculate their annual costs. It is seen that these are functions of direct operating labor and total plant investment. If other factors are thought to be appropriate, they should be so documented.

12.5.5

Approximate Equation for Manufacturing Costs -- Based on the factors shown in Table B-8, an equation has been developed which may be used instead of the table (assuming no change in factors from those recommended). Oper. Costs (excluding corporate overhead and sales expense) = Raw materials less byproducts, $/yr + Utilities and chemicals, $/yr + Fuels, $/yr + (3.4)(Annual Direct Oper. Labor) + (0.15)(Total Plant Investment) Corporate Overhead = (0.60) (Total Labor) Sales Expense = (0.10) (Annual Sales) Raw materials less byproducts, utilities, chemicals, fuel and direct operating labor should be documented as shown in Table B-8. A statement that the equation was used should be included in the report. Note that depreciation is not included in the operating cost estimate. Depreciation is taken into account in the next section (Financial Analysis).

12.6

Financial Analysis

12.6.1

Introduction -- Using the data developed in the previous sections, a measure of the economic merit of the process is next estimated. There are many measures-of-merit procedures available that highlight different aspects of a project's economic merit. Most of these procedures utilize the time value of money concept. This recommended practice does not suggest a particular procedure to be used exclusively but rather provides




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guidelines on how each should be done in a consistent and readily understandable manner. The various procedures are discussed briefly below: Net Present Value: The net present value (NPV) of the project is a measure of how much the project will increase (or decrease) the wealth of the owner after accounting for the time value of money. It is calculated by summing all project cash flows discounted to a single point in time. Profitability Ratio: This is the ratio of a project's NPV to the NPV of the initial capital investment. This ratio is useful in selecting among projects with different capital investment requirements in situations where investment funds are limited. Higher profitability ratios are required when investment funds are in short supply. Internal Rate of Return: A project's internal rate of return (IRR) is defined as the discount rate for which the present value of the after-tax cash flows is equal to zero. Projects with (*) higher IRR values are generally preferred to projects with lower values of IRR . Payback Period: The payback period is defined as the length of time required to recover the initial capital investment. The advantage of this method is that it is relatively easy to calculate and understand. Generally, time value of money is ignored. Payback period is most often used in preliminary estimation where more sophisticated methods are not merited due to the relative inaccuracy of the data. Discounted Payback Period: The discounted payback period is similar to the simple payback period, except that the time value of money is considered. The discounted payback period is defined as the length of time for the present value of project revenues to equal the present value of the project's initial capital investment. The two payback period methods have the drawback of not considering any cash flows that occur after the payback is reached. Annualized Production Cost: This method is similar to the revenue requirements technique used in the utility industry. The annualized production cost (APC) is defined as the price per unit of production which, if held constant over the project's lifetime, would produce a present value of revenues equal to the present value of all project expenses. It may be expressed in real (constant) dollars, which are measured with the effects of inflation excluded, or in nominal (current) dollars which are measured with the effects of inflation included. This method has the advantage that revenue streams need not be estimated. Instead, a capital recovery factor (CRF) is applied at an appropriate discount rate that provides the revenue required to cover all after-tax costs including a return on and of the investment. (*) See AACE Recommended Practice No. 15R-81, "Profitability Methods" for a discussion of the method of calculating IRR and limitations on its use. This reference also provides detailed discussion of several other procedures for financial analysis including NPV.

12.6.2

Cash Flow Procedure -- The elements of the year-by-year cash flows are based on the AACE Recommended Practice (ref. 4.1) entitled, "Profitability Methods." The following equations are used in calculating cash flows for each year. Total Capital Requirement (as defined in Table B-1)




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Depreciable Capital = Total Plant Costs (Table B-1) + Prepaid Royalties + Spare Parts + Initial Catalyst and Chemicals Total Expense = Start-up Expense + Operating Costs (excluding depreciation) + Depreciation Taxable Income = Revenue - Total Expense Taxes = Taxable Income x Tax Rate Cash Flow = Revenue - Total Expenses (including startup) – Taxes + Depreciation - Total Capital Requirement (excluding start-up) + Salvage Value The timing of the cash flow is very critical. Each of the items in the Cash Flow equation need not occur in the same year. For example, the Total Capital Requirement item occurs in years prior to start-up of the plant and hence, revenues in those years are zero. Also, Salvage Value is zero for every year except the last year. The reader is referred to the AACE Recommended Practice (ref. 4.1) mentioned above for an example of how the complete cash flow is developed. In this Practice, certain conventions as to timing of the cash flows are recommended: Total Capital Requirement is allocated as appropriate over the estimated years of construction based upon the anticipated construction and equipment delivery schedules. • Revenues, total expenses and taxes start in the year after Total Capital Requirement is expended. • Salvage, recovered depreciable capital, recovered working capital and resalable land occurs in the last year plus one. • All expenditures are assumed to occur at the end of the year. • Depreciation starts on the last year of construction (see next section under Financial Analysis Model). • Venture life after start-up (see Economic Life in next section). • Escalation: •

If escalation is included in the analysis, it is suggested that escalation of all components (capital, labor for operating expenses, fuel, power, raw materials, chemicals, products, and other operating expenses) be individually considered. As a general rule labor for operating expenses and fuel and power escalate at a higher rate than the other components. Documentation of escalation factors used for each component should be provided. The choice of whether or not to include escalation in the cash flow analysis is not of major importance provided that all comparisons are made on the same basis, i.e. with or without escalation. If escalation is not considered, the analysis inherently assumes that any escalation in costs will be offset by an equivalent escalation in revenues. In the next section, a model is described in which the calculation of the various measures of merit based on the above cash flows is described. The model has provisions for escalating Copyright 2003 AACE, Inc.



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the components of the cash flows at the assumed inflation rates. As noted above, if desired, escalation may be ignored. There are many financial analysis computer models available with varying features and capabilities. In the next section the desired logic and capabilities of a model to be used in the Practice are described. 12.6.3

Logic and Description of a Financial Analysis Model Suggested for use in this Practice:

A financial analysis computer model m odel should evaluate the economic feasibility feasibili ty of process plants and other systems. It should generate generate projections of cash flows and calculate the economic measures-of-merit discussed previously to help generate generate the economic feasibility of the system being considered. considered. It should be able to perform sensitivity analyses on key project uncertainties (either performance or cost) so as to address the impact of these parameters on project economics. The use of the model should require the input of general project information (such as process annual production rate), general economic assumptions (such as inflation rates), and estimates of project revenues, costs, and cash flow timing (discussed in the previous section). Output from the model should include: • • • • • •

Annual cash flows for capital, operating operating costs, taxes and revenues for each year. Net present value. Internal rate of return. Payback period. Discounted payback period. Levelized (annualized) life cycle production cost in both nominal (current, inflation-included dollars) and real (constant, inflation excluded dollars) terms.

The model should individually analyze a wide number of project cash flows, including: • • • • • •

Initial capital. Interim capital (occurring during the operating life rather than the construction period). O&M (operation and maintenance). Revenue. Salvage. Income and property taxes.

Some of the general capabilities that should be available in the selected computer model are: Initial Capital Costs: The model should automatically spread capital costs over the construction period specified by the user. The initial capital costs may be expressed in any year's price level, with the model accounting for escalation during construction. Interim Capital Costs: Some projects will have capital costs that occur during the operating life (rather than the construction period) when equipment must be replaced during the project. Interim capital costs may be expressed in any year's price level, with the model accounting for price escalation between the price year and the year that the replacement occurs. Depreciation: Depreciation should be calculated for each year year of the project life using current federal tax methods for each capital and interim capital account. Since 1981, in the United States, the Accelerated Cost Recovery System (ACRS) has been used to determine the appropriate class life and depreciation schedule. The Tax Reform Act of 1986 1986 introduced a modified ACRS depreciation system and also increased the number of ACRS class lives. Table C-1 lists the modified ACRS (MACRS) class lives and corresponding asset depreciation range (ADR) class lives. The ADR class lives represent estimates of




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the lives of equipment and other depreciable assets for tax purposes. Actual equipment lives tend to be longer than the ADR class lives (see Economic Life discussion following). Nevertheless, by U.S. law, ADR class lives must be used in selecting select ing the appropriate MACRS class cl ass life. Table C-2 shows the MACRS Depreciation Table based based on the ADR class life. Table C-3 shows the ADR class lives for various processes. Knowing the ADR class life provides a MACRS class life (Table C-1). Knowing the MACRS class life provides a depreciation schedule from Table C-2. For example, assuming a knitwear manufacturing process, the ADR class life is 9 (Table C-3), the MACRS class life is 5 (Table C1), and the depreciation schedule is 20%, 32%, 19%, 15%, and 14% for years 1-5 respectively. If a process not listed in Table C-3 is being evaluated, the average ADR class life, 13 years, corresponding to a 7-year depreciation schedule, is generally used. Economic Life: Life: Table C-3 also lists the approximate economic life of of processes in various industries. Cash flows should be calculated for the number of years of construction plus the number of years of economic life. Operation and Maintenance Costs: The model should be capable of entering all relevant categories of O&M expenses, such as power, fuel, labor, and other operating expense. The user should be able to express these costs in any convenient price year with applicable applicable escalation rates. The model should automatically calculate the nominal (current year) O&M cash flows in each year of the project's operating life. The model should also permit each year's year's O&M expense to be entered explicitly into the model. Revenues: The model should be capable of entering different types of revenues such as various product and byproduct streams. The model should employ user-supplied escalation escalation rates, if desired, to calculate the nominal (current) dollars in each year of the plant's operating lifetime. Taxes: The model should automatically calculate property tax payments and combined federal/state income tax payments for each year year of the project. Property tax rates are highly variable from state to state and within a particular state. In the absence of specific data, assume 2% 2% of the escalated total plant investment for property taxes. The 1986 Tax Reform Act rate of 34% can be used used for federal tax calculation (assuming all projects are from companies having taxable income in excess of $75,000). Most states have a state income tax. The average rate for all states is 7.7%. Assuming that state income taxes are deductible for federal income tax purposes and that the allowable tax deductions from revenue (e.g., depreciation) are the same for state income taxes as they are for federal income taxes, the combined rate is 39.1%. An appropriate model should use this default default value. Salvage: Salvage represents the cost or credit associated with with removing the system after its useful life and selling the parts for scrap or for other uses. Salvage occurs in the year following the last year of plant operation. The user specifies the fraction of the initial capital investment. (Note: It is commonly assumed that the cost of dismantling will equal the salvage credit and thus salvage is not generally recommended to be considered.) Interest: Interest charges should be implicitly accounted for in the model by the use of an after-tax weighted cost of capital. This approach to modeling interest-related cash flows assumes that the debt fraction of the investing corporation remains constant during the life of the investment and that interest expenses are deductible in the period incurred. Changes in the tax laws make this latter assumption invalid in some situations. For this Recommended Practice, it is assumed that the effect of this invalid assumption is negligible. Weighted Cost of Capital: In general, the proper discount rate for projects projects of risk similar to a company's current business is equal to its weighted weighted average cost of capital. Assuming a debt fraction of 32% and and an equity fraction of 68%, and assuming long-term expected return on corporate bonds (based on 60-year history) is 5.3% and for equity is 12.1%, the weighted cost of capital is:




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K = (0.32)(0.053) + 0.68(0.121) = 9.9% The after tax weighted cost of capital, (the value suggested for this practice) incorporating the deductibility of debt at the combined state and federal tax rate of 39.1% would be: K = (0.32) (0.053) (1-0.391) + (0.68) (0.121) = 9.3% The 9.3% rate would, for this specific example, be considered the minimum acceptable rate of return on an investment (MARR). The model should determine the MARR in this manner. The Present Value of After-Tax Cash Flows: The net after-tax cash flow for each year year of the project is calculated from the other cash flows. The present value of all after-tax after-tax cash flows is calculated as follows: ATCFpv = (Present Value of Total Revenue + Present Value of Salvage Value) - (Present Value of Operation and Maintenance + Present Value of Property Tax + Present Value of Income Taxes) - (Present Value of Total Init. Capital Investment + Present Value of Total Interim Capital Inv.) The calculations for each of the above present values are shown in Table C-4 along with the calculations for each of the measures-of-merit. Table C-5 is a summary of the principal assumptions that may be used in the model. Table C-6 is a tabulation of nomenclature for the model. The information provided in Tables C-4, C-5, and C-6 may be used as an aid to preparing a satisfactory computer modeling program if one is not otherwise conveniently available. 12.7 Sensitivity Analysis A sensitivity analysis examines the effect of changes (technical or non-technical) non-tec hnical) on a base line study. Changes might include variations in the plant size to examine economies of scale or modifying the flow sheet to examine the best use use of a by-product stream. Key variables and assumptions (those in which small changes would have the largest effect on the results of the base line study) are usually chosen for the analysis. These variables would most likely be found in raw material costs, by-product costs, yield assumptions, financial analysis assumptions (revenues, cash flow timing) and assumptions in design or costs for which little supporting data are available. 13.

APPLICATIONS AND LIMITATIONS

The purpose of this Practice is to assist evaluators in consistently considering all the components in a technical economic study of plant processes. It is not intended to replace existing in-house procedures, but rather as a means of consistently reporting the results such that valid comparisons can be made both within or outside the organization. The Practice is limited to applications of budget-type estimates, although order-of-magnitude estimates may also be made using these procedures. Parts of the Practice may also be applied in definitive-type studies. Detailed reporting of results as outlined in the next section is extremely important, especially in those areas where changes from the Recommended Practice have been made. Enough information must be provided so as to permit others to duplicate results and make changes with confidence that the comparisons are valid. In addition to providing consistency, the Practice, in that it uses a variety of measures-of-merit, may be used for many types of process studies:




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•

• •

• •

14.

The method may be used to determine whether to make an investment. For example, if a process has a positive NPV at the after-tax weighted cost of capital, then the process will result in increased benefit to the company. The larger the NPV, the greater the value to the company. Alternate investment projects for satisfying a given purpose can be compared. Incremental investment projects can be evaluated. For example, if an investment addition to an existing investment results in savings in yield or fuel, incremental analysis using the practice would indicate the worthiness of the investment addition. The application of the practice may be used to determine priority among various investment alternatives that are non-mutually exclusive competing for a fixed budget. Engineering alternatives for a project may be consistently compared. The cost-effectiveness of technical design changes may be evaluated. REPORT CONTENT

In general, the report should contain enough information such that an independent study using the same basic data, assumptions, and deviations from the practice would come up with the same result. As stated previously in this Practice, the attempt here is to standardize a procedure such that, given a number of factors and data, an independent study could be made that would verify the results and ensure comparability. This Practice has recommended the use of a number of factors, but does not require their use. What is required is that the factors and data actually used be documented in the report. Table D-1 is a checklist of the items that should be covered in the report. It is recognized that in some cases (such as publication in a trade journal), it may not be possible, for reasons of space limitations or for proprietary limitations, to include all the data shown in Table D-1. Table D-2 shows the minimum information that should be included under these circumstances. Table D-3 lists the recommendation of this Practice and provides for a listing of deviations from the Recommended Practice. A summary of the descriptive material and tables to be included in the report is shown in Table D-4. It is recommended that because of the considerable deviations in results that may be obtained, depending on methodology and data used, the following disclaimer be made in the report: "This study was performed under the guidelines of the AACE Recommended Practice for purposes of consistency, verifiability, and comparability. There is no guarantee, implicit or otherwise, that the economic performance shown will be duplicated in actual practice."




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APPENDIX A: DESIGN AND COSTING SPECIFICATIONS FOR EQUIPMENT AGITATED OPEN TANK MATERIAL: CAPACITY, volume (gal): DIAMETER (ft): HEIGHT (ft): AGITATOR SPEED (rpm): AGITATOR POWER (hp): AGITATED OPEN TANK, FLOTATION CELL MATERIAL: CAPACITY, volume per cell (cu ft): SINGLE OR DUAL DRIVE: DRIVER POWER (hp): AGITATED PRESSURE TANK MATERIAL: CAPACITY, volume (gal): DIAMETER (ft): HEIGHT (ft): PRESSURE (psig): AGITATOR POWER (hp): AGITATOR MATERIAL: CAPACITY (hp): SPEED (rpm): TYPE IMPELLER: TYPE DRIVER: AIR COMPRESSOR, CENTRIFUGAL MATERIAL: INLET CAPACITY (acfm): DISCHARGE PRESSURE (psig): INLET TEMPERATURE (deg F): INLET PRESSURE (psig): DRIVER HORSEPOWER (hp): TYPE DRIVER: STAGES: AIR DRYER MATERIAL: INLET CAPACITY (acfm): BLENDER, ROTARY DOUBLE-CONE MATERIAL: CAPACITY (cu ft) SPEED (rpm): DRIVER HORSEPOWER (hp): BLENDER, ROTARY DRUM MATERIAL: BULK MATERIAL DENSITY (lb/cu ft): DRIVER HORSEPOWER (hp): CENTRIFUGE, ATM SUSPENDED BASKET MATERIAL: CAPACITY (lb/hr): HORSEPOWER (hp):


CENTRIFUGE, BATCH AUTOMATIC MATERIAL: CAPACITY (lb/batch): CAPACITY (cu ft): HORSEPOWER (hp): CENTRIFUGE, BOTTOM BATCH MATERIAL: CAPACITY (lb/hr): DIAMETER (in.): HORSEPOWER (hp): CENTRIFUGE, BOTTOM UNLOADING MATERIAL: CAPACITY (lb/hr): DIAMETER (in): HORSEPOWER (hp): CENTRIFUGE, DISK MATERIAL: CAPACITY (lb/hr): DIAMETER (in.): HORSEPOWER (hp): CENTRIFUGE, RECIPROCATING CONVEYOR MATERIAL: CAPACITY (lb/hr): DIAMETER (in): CENTRIFUGE, SCREEN BOWL MATERIAL: CAPACITY (lb/hr): DIAMETER (bowl, in.): LENGTH (bowl, in.): HORSEPOWER (hp): CENTRIFUGE, SCROLL CONVEYOR MATERIAL: CAPACITY (lb/hr): DIAMETER (in.): HORSEPOWER (hp): CENTRIFUGE, SOLID BOWL MATERIAL: CAPACITY (lb/hr): DIAMETER (bowl, in.): LENGTH (bowl, in.): HORSEPOWER (hp): CENTRIFUGE, TOP SUSPENDED BATCH MATERIAL: CAPACITY (lb/batch): DIAMETER (in.): HORSEPOWER (hp):



26 of 61 April 1991

CENTRIFUGE, TOP UNLOADING MATERIAL: CAPACITY (lb/hr): DIAMETER (in): HORSEPOWER (hp): CENTRIFUGE, TUBULAR MATERIAL: CAPACITY (lb/hr): DIAMETER (in.): HORSEPOWER (hp): CENTRIFUGE, VIBRATORY MATERIAL: CAPACITY (tph): DIAMETER (in): FEED SIZE (in): HORSEPOWER (hp): CONVEYOR (Apron, Open Belt, Closed Belt) MATERIAL: CAPACITY (tons/hr): LENGTH (ft): WIDTH (in.): BULK PRODUCT DENSITY (lbs/cu ft): DRIVER HORSEPOWER (hp): CONVEYOR (Bucket) MATERIAL: CAPACITY (tph): LENGTH (ft): HORSEPOWER (hp): BULK PRODUCT DENSITY (lb/cu ft): BUCKET SIZE (eg, in. width x in. depth): CONVEYOR (Pneumatic) (As above except line size instead of width) CONVEYOR (Roller) (As above except no bulk density but distance between centers) CONVEYOR (Screw) (As above except screw diameter instead of width) CONVEYOR (Vibrating): MATERIAL: CAPACITY (tph): LENGTH (ft): PAN WIDTH (in.): CRANE MATERIAL: CAPACITY (tons): SPAN (ft): TYPE (bridge or beam):

CAPACITY (tph): CONE DIAMETER (in.): PRODUCT SIZE (in.): HEAD TYPE (eg, standard or short): HORSEPOWER (hp): CRUSHER, GYRATORY MATERIAL: CAPACITY (tph): MANTEL DIAMETER (in.): PRODUCT SIZE (in.): TYPE CRUSHING (eg, primary or secondary): HORSEPOWER (hp): CRUSHER, IMPACT CAPACITY (tph): FEED OPENING (eg, 48 in. x 50 in.): CRUSHER, JAW MATERIAL: CAPACITY (tph): FEED OPENING SIZE (eg, 36 in. x 48 in.): PRODUCT SIZE (in.): HORSEPOWER (hp): CRUSHER, REVERSIBLE HAMMERMILL MATERIAL: CAPACITY (tph): FEED OPENING SIZE (eg, 8 in. x 36 in.): HORSEPOWER (hp): CRUSHER, ROLL RING MATERIAL: CAPACITY (tph): FEED OPENING (eg, 18 in. x 28 in.): HORSEPOWER (hp): CRUSHER, ROTARY MATERIAL: CAPACITY (tph): HORSEPOWER (hp): CRUSHER, ROTARY BREAKER (BRADFORD) MATERIAL: CAPACITY (tph): FEED OPENING (in. diameter x in. length): PRODUCT SIZE (in.): HORSEPOWER (hp): CRUSHER, SAWTOOTH MATERIAL: CAPACITY (tph): DRIVER HORSEPOWER (hp): CRUSHER, SINGLE ROLL CRUSHER MATERIAL: CAPACITY (tph): ROLL SIZE (eg, in. diam x in. length)

CRUSHER, CONE MATERIAL:




27 of 61 April 1991

CRYSTALLIZER, BATCH VACUUM MATERIAL: CAPACITY (tpd): CAPACITY (gal): CRYSTALLIZER, MECHANICAL MATERIAL: CAPACITY (tpd): LENGTH (ft): SPEED (rpm): HORSEPOWER (hp): CRYSTALLIZER, OSLO MATERIAL: CAPACITY (tpd): DRYER, ATMOSPHERIC TRAY MATERIAL: CAPACITY (lb/hr): AREA OF TOP TRAY (sq ft): DUST COLLECTOR, WASHED MATERIAL: CAPACITY (cfm): DIAMETER (in): HEIGHT (ft): EJECTOR MATERIAL: CAPACITY (lb/hr): PUMPING MEDIUM AND PRESSURE (psig)/temperature (deg F): MEDIUM PUMPED AND PRESSURE (torr): NUMBER OF STAGES: ELECTRIC GENERATOR MATERIAL: CAPACITY (kva): ELEVATOR CAPACITY (ton): HEIGHT (ft): TYPE (freight or passenger): EVAPORATOR, AGITATED FALLING FILM MATERIAL: CAPACITY (lb/hr): CAPACITY (gal): TOTAL HEATING SURFACE AREA (sq ft): SPEED (rpm): HORSEPOWER (hp): EVAPORATOR, FORCED CIRCULATION MATERIAL, SHELL: MATERIAL, TUBES: CAPACITY (lb/hr): CAPACITY (gal): TOTAL HEATING SURFACE AREA (sq ft): SPEED (rpm):


EVAPORATOR, LONG TUBE FILM MATERIAL, SHELL: MATERIAL, TUBES: CAPACITY (lb/hr): CAPACITY (gal): TOTAL HEATING SURFACE AREA (sq ft): SPEED (rpm): EVAPORATOR, LONG TUBE VERTICAL MATERIAL, SHELL: MATERIAL, TUBE: CAPACITY (lb/hr): AREA (sq ft): EVAPORATOR, STANDARD HORIZONTAL TUBE MATERIAL, SHELL: MATERIAL, TUBE: CAPACITY (lb/hr): CAPACITY (gal): AREA (sq ft): EVAPORATOR, STANDARD VERTICAL TUBE MATERIAL, SHELL: MATERIAL, TUBE: CAPACITY (lb/hr): CAPACITY (gal): AREA (sq ft): EVAPORATOR, WIPED FILM MATERIAL: CAPACITY (lb/hr): HEAT TRANSFER AREA (sq ft): FAN, CENTRIFUGAL MATERIAL: CAPACITY (cfm): DISCHARGE PRESSURE (psig): SPEED (rpm): HORSEPOWER (hp): TYPE (turbo, propeller, rotary blower, vaneaxial, standard industrial): FEEDER BELT MATERIAL: CAPACITY (cu ft/hr): HORSEPOWER (hp): FEEDER, BIN-ACTIVATOR MATERIAL: DIAMETER (ft): FEEDER, GRAVIMETRIC MATERIAL: CAPACITY (lb/hr): HORSEPOWER (hp):



28 of 61 April 1991

FEEDER, ROTARY MATERIAL: CAPACITY (lb/hr): DIAMETER (in): SPEED (rpm): HORSEPOWER (hp): FEEDER, VIBRATING MATERIAL: CAPACITY (tph): LENGTH (ft): WIDTH (in): HORSEPOWER (hp): FILTER, CARTRIDGE MATERIAL: CAPACITY (gpm): PARTICLE RETENTION SIZE (mesh): OPERATION (manual or automatic): FILTER, LEAF-DRY MATERIAL: CAPACITY (lb/batch): LEAF AREA (sq ft): FILTER, PRESSURE LEAF-WET MATERIAL: CAPACITY (lb/batch): LEAF AREA (sq ft): FILTER, PLATE AND FRAME MATERIAL: CAPACITY (lb/batch): CAPACITY (frame): PLATE SIZE (in x in): FILTER, ROTARY DISK MATERIAL: CAPACITY (lb/hr): FILTER AREA (sq ft): SPEED (rpm): HORSEPOWER (hp): FILTER, ROTARY DRUM MATERIAL: CAPACITY (lb/hr): FILTER AREA (sq ft): SPEED (rpm) HORSEPOWER (hp): FILTER, SCROLL MATERIAL: CAPACITY (tph): SCREEN DIAMETER (in): FEED SIZE (medium or fine): FILTER, SEWAGE MATERIAL: CAPACITY (lb/hr): FILTER AREA (sq ft):


FILTER, SPARKLER MATERIAL: CAPACITY (cu ft): FILTER AREA (sq ft): DIAMETER (in): FLAKER, DRUM MATERIAL: CAPACITY (lb/hr): AREA (sq ft): SPEED (rpm) HORSEPOWER (hp): FLARE MATERIAL: CAPACITY: (lb/hr): DIAMETER (in): HEIGHT (ft): TEMPERATURE OF FLARE GAS (deg F): MOLECULAR WEIGHT OF FLARE GAS (lbmoles): TYPE (guyed, derrick, self-supporting, horizontal): FURNACE, HEATER MATERIAL: DUTY (mm btu/hr): DESIGN PRESSURE (psig): DESIGN TEMPERATURE (deg F): FUEL FEED RATE (scfm or gpm): FUEL HEATING VALUE AND TYPE: TYPE (heater, pyrolysis, reformer, vertical, box): HEAT EXCHANGER MATERIAL, SHELL: MATERIAL, TUBE: CAPACITY (lb/hr): HEAT TRANSFER AREA (sq ft): TUBE LENGTH (ft): TUBE PRESSURE (psig): SHELL PRESSURE (psig): TYPE (floating head, fixed tube sheet, U-tube, cross-bore, graphite tube) HEAT EXCHANGER, AIR COOLER MATERIAL: BARE TUBE AREA (sq ft): TUBE LENGTH (ft): DESIGN PRESSURE (psig): NUMBER OF BAYS: HEAT EXCHANGER, FIN TUBE MATERIAL: TUBE LENGTH (ft): NUMBER OF EXTERNAL FINS: DESIGN PRESSURE (psig): NUMBER OF TUBES PER BUNDLE: HEAT EXCHANGER, JACKETED (AS PER FIN TUBE)



29 of 61 April 1991

HEAT EXCHANGER, SPIRAL PLATE MATERIAL: HEAT TRANSFER AREA (sq ft): TUBE PRESSURE (psig): HEAT EXCHANGER, SUCTION HEATER MATERIAL: HEAT TRANSFER AREA (sq ft): HEAT EXCHANGER, TANK HEATER (ELECTRIC) MATERIAL: CAPACITY (kw): HEAT EXCHANGER, TANK HEATER (STEAM COIL) MATERIAL: CAPACITY (lb/hr): HEAT TRANSFER AREA (sq ft): PIPE DIAMETER (ft): HEAT EXCHANGER, THERMASCREW (REITZ) MATERIAL: HEAT TRANSFER AREA (sq ft): HEAT EXCHANGER, TWO SCREW MATERIAL: HEAT TRANSFER AREA (sq ft): HEAT EXCHANGER, WASTE HEAT (WASTE HEAT BOILER) MATERIAL: CAPACITY (lb/hr): HEAT TRANSFER AREA (sq ft): HEATING UNIT, DOWTHERM MATERIAL: CAPACITY (mm btu/hr): CAPACITY (process flow, gpm): PRESSURE (psig): TEMPERATURE (deg F): HOIST LOAD (tons): TYPE (single speed electric, five speed electric, plain hand hoist, geared hand hoist): WITH OR WITHOUT TROLLEY: HORIZONTAL TANK, CYLINDRICAL (ASME CODE) MATERIAL: CAPACITY (gal): DIAMETER (ft): PRESSURE (psig): TEMPERATURE (deg F): HORIZONTAL TANK, MULTI-WALL MATERIAL: CAPACITY (gal): DIAMETER (ft): LENGTH (ft): PRESSURE (psig): TEMPERATURE (deg F):


KNEADER MATERIAL: CAPACITY (lb/hr): CAPACITY (gal): HORSEPOWER (hp): TYPE (stationary, tilting, vacuum): LINING MATERIAL: LINING AREA (sq ft): MORTAR TYPE IF BRICK: TYPE (acid brick, monolithic, other): TYPE WALL (straight wall tank,small horizontal tank, large horizontal vessel): MILL MATERIAL: CAPACITY (tph): INSIDE DIAMETER (ft): INSIDE LENGTH (ft): DRY OR WET GRINDING: POWER (hp): SPEED (rpm): TYPE (rod, ball, autogenous, attrition, micropulverizer, roller): MIXER MATERIAL: CAPACITY (cu ft): SPEED (rpm): HORSEPOWER (hp): TYPE (sigma, fixed propeller, portable propeller, extruder, muller, spiral ribbon, two-roll, pan): MOTOR ENCLOSURE: SPEED (rpm): HORSEPOWER (hp): TYPE (open drip proof, tefc class f insulation, explosion proof, variable speed): PUMP MATERIAL: CAPACITY (gpm): HEAD (ft): TEMPERATURE (deg F): LIQUID SPECIFIC GRAVITY: POWER (hp): POWER SOURCE (elec., steam, engine): TYPE (reciprocation, simplex, duplex, diaphragm, slurry, rotary): PUMP, CENTRIFUGAL MATERIAL: CAPACITY (gpm): HEAD (ft): TEMPERATURE (deg F): LIQUID SPECIFIC GRAVITY: POWER (hp): POWER SOURCE (electricity, steam, engine): TYPE (single stage, in line, vertical, axial flow):



30 of 61 April 1991

REACTOR MATERIAL: CAPACITY (lb/hr): INSIDE DIAMETER (ft): TYPE (single stage, double stage, fluidized bed): REBOILER MATERIAL, SHELL: MATERIAL, TUBE: CAPACITY (mm btu/hr): HEAT TRANSFER AREA (sq ft): TUBE LENGTH (ft): TUBE PRESSURE (psig): TYPE (kettle, U-tube, thermosiphon): REFRIGERATION UNIT MATERIAL: CAPACITY (tons): EVAPORATOR TEMPERATURE (deg F): TYPE (mechanical, centrifugal): ROTARY DRYER MATERIAL: CAPACITY (lb/hr): PERIPHERAL AREA (sq ft): SPEED (rpm): TYPE (direct, jacketed vacuum, vacuum, indirect): SCALE MATERIAL: CAPACITY (lbs): BELT WIDTH (in), "ONLY BELT SCALE": TYPE (beam, semi-frame, full-frame, tank, belt, track, truck): SEPARATION, WATER ONLY CYCLONE MATERIAL: CYCLONE DIAMETER (in), INDIVIDUAL: NUMBER OF CYCLONES: LINEAR OR RADIAL CONFIGURATION: STACK MATERIAL: HEIGHT (FT): DIAMETER (in): THICKENER MATERIAL (rake): DIAMETER (ft): TOWER MATERIAL: CAPACITY (lb/hr): DIAMETER (ft): TRAY SPACING (in.): NUMBER OF TRAYS: PRESSURE (psig):


TOWER, COOLING MATERIAL: CAPACITY (gpm): COOLING RANGE (deg F): APPROACH (deg F): WET BULB TEMPERATURE (deg F): MAIN HEAD LENGTH(S) (ft): SUPPLY & RETURN LINE LENGTH(S) (ft): TOWER, PACKED MATERIAL: DIAMETER (ft): PACKING HEIGHT (ft): PACKING TYPE: PRESSURE (psig): TRAY DRYING SYSTEM MATERIAL: CAPACITY (lb/hr): TRAY SURFACE (sq ft): POWER (hp): HEATING MEDIUM (steam, air or other): TYPE (turbo, batch vacuum, atmospheric): TURBINE, GAS MATERIAL: CAPACITY (hp): TURBINE, STEAM MATERIAL: CAPACITY (bhp): SPEED (rpm): STEAM PRESSURE (psig): TYPE (condensing or non-condensing): VACUUM PUMP MATERIAL: CAPACITY (inlet cfm): ULTIMATE PRESSURE (torr): SPEED (rpm): POWER (hp): TYPE (mechanical, water-sealed, mechanicalbooster): VERTICAL TANK, PROCESS MATERIAL: CAPACITY (gal): DIAMETER (ft): HEIGHT (ft): PRESSURE (psig): TEMPERATURE (deg F): TYPE (cylindrical, multi-wall, shell, spheroid, sphere, gas holder):



31 of 61 April 1991

VERTICAL TANK, STORAGE MATERIAL: VOLUME (gal): DIAMETER (ft): HEIGHT (ft): PRESSURE (psig) TEMPERATURE (deg F): TYPE (flat bottom/roof, fiberglass, light gauge, cone roof, open top, floating roof, cone bottom bin, lifter): VIBRATING SCREEN, RECTANGULAR MATERIAL: LENGTH (ft): WIDTH (ft): ENCLOSURE (no or yes): POWER (hp): NUMBER OF DECKS:


VIBRATING SCREEN, RECTANGULAR (HUMMER TYPE) MATERIAL: CAPACITY (lb/hr): SCREEN AREA (sq in): DEGREE OF SEPARATION (fine or coarse): NUMBER OF DECKS: VIBRATING SCREEN, SIFTER CIRCULAR MATERIAL: CAPACITY (lb/hr): SCREEN AREA (sq in): SCREEN DIAMETER (in.): POWER (hp): NUMBER OF DECKS: WATER TREATMENT SYSTEM, BOILER MATERIAL: CAPACITY (lb/hr): STEAM PRESSURE (psig): SATURATED OR SUPERHEATED STEAM: DEMINERALIZER WATER RATE (gph): SOFTENING SYSTEM WATER RATE (gph):



32 of 61 April 1991

APPENDIX B: TABLE B-1 -- COMPONENTS OF TOTAL CAPITAL REQUIREMENTS

I.

II. III. IV. V. VI. VII.

Total Plant Cost A. Process Capital 1. Direct Cost a. Material Costs (1) Purchased Equipment Costs (2) Installation Material Costs Total Direct Material = a(1) + a(2) b. Labor Costs (1) Labor to Handle and Place Bare Equipment (2) Installation Labor Total Direct Labor = b(1) + b(2) Total Direct Cost = 1a + 1b 2. Indirect Costs a. Indirect Field Labor b. Labor Benefits c. Indirect Field Costs, (Construction Equipment, Construction Support and Tools) Total Indirect Costs = 2a + 2b + 2c Total Process Capital = A1 + A2 B. General Facilities C. Home Office, Overhead and Fee D. Contingencies 1. Project 2. Process Total Contingencies = D1 + D2 Total Plant Cost = A + B + C + D Prepaid Royalties Start-up Costs Working Capital Spare Parts Initial Catalyst and Chemicals Land TOTAL CAPITAL REQUIREMENTS = I+II+III+IV+V+VI+VII




33 of 61 April 1991

APPENDIX B: TABLE B-2 -- EXAMPLE OF EQUIPMENT AND UTILITY SUMMARY Item

Quantity Delivered Chemical required purchase Cost cost $/hr

Pretreatment section Ht. exch. 1 2 Vertical columns 1 2 etc. Reactor section Ht. exch. 1 2 Furnace 1 2 etc. Separation section Etc. Subtotals Power for util. kwh/hr Total power kwh/hr


XXXX

XXX

Cooling Treated water Water gpm mgph gpm mgph

XXX (C)

XXX (D)

Power hp

kwh/hr

(A) (B)

Steam required mlbs/hr

Steam produced mlbs/hr

Net Steam mlbs/hr

Fuel mmbtu/hr

XXX (E)

XXX

A+B+C +D+E



34 of 61 April 1991

APPENDIX B: TABLE B-3 – DISTRIBUTIVE FACTORS FOR BULK MATERIALS Type of system:

Foundations

Coal Handling /

Crushing, Grinding,

Entrained

Fluidized Bed

Hot Gas

Acid Gas

Stockpiling

Conveying

Gasification

Gasification

Cleanup [a]

Scrubbing [b]

Material [c]

4

4

7

6

6

6

133

133

133

133

50

133

4

4

7

6

5

6

50

50

50

50

50

50

2

2

2

2

5

4

100

100

100

50

50

100

1

1

4

4

3

2

150

150

150

100

150

150

6

4

7

7

6

7

40

40

40

40

40

40

9

8

9

9

9

9

75

75

75

75

75

75

5

5

40

40

40

40

Labor

50

50

50

50

50

50

Material

0.5

0.5

0.5

0.5

0.5

0.5

Labor

300

300

300

300

300

300

3

3

4.5

4

4

4

80

80

80

80

80

80

Labor [d] Structural Steel

Material Labor

Buildings

Material Labor

Insulation

Material Labor

Instruments

Material Labor

Electrical

Material Labor

Piping

Painting

Miscellaneous

Material

Material Labor

[a]: ex. Zinc ferrate [b]: such as Seloxol and Benfield [c]: Bare equipment cost x factor. [d]: Material cost x factor.




35 of 61 April 1991

APPENDIX B: TABLE B-3 – DISTRIBUTIVE FACTORS FOR BULK MATERIALS (Continued)

Type of system:

Solids Handling

Temperature:

[400

>400

®F

®F

[400 ®F

Pressure:

Foundations

Material

Instruments

Painting

Miscellaneous

[150

>150

[150

>150

[150

>150

[150

>150

[150

>150

psig

psig

psig

psig

psig

psig

psig

psig

psig

psig

6

6

5

6

6

5

5

133

133

133

133

133

133

133

133

133

133

133

133

4

2

4

4

5

6

5

5

5

6

4

5

50

100

100

100

50

50

50

50

50

50

50

50

2

2

2

2

5

4

3

3

3

4

3

3

100

100

100

50

50

100

100

100

100

100

100

100

Material

--

1.5

1

1

2

2

1

1

2

3

1

3

Labor

--

150

150

150

150

150

150

150

150

150

150

150

Material

6

6

2

7

7

8

6

7

7

7

6

7

40

40

40

40

40

75

40

40

75

40

40

40

9

9

6

8

7

8

8

9

6

9

8

9

75

75

75

75

75

75

75

75

40

75

75

75

5

5

35

40

40

40

45

40

40

40

30

35

Labor

50

50

50

50

50

50

50

50

50

50

50

50

Material

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

Labor

300

300

300

300

300

300

300

300

300

300

300

300

3

4

3.5

4

4

4.5

3

4

4

5

4

5

80

80

80

80

80

80

80

80

80

80

80

80

Material

Material

Material Labor

Piping

Systems

>400 ®F

6

Labor Electrical

[400 ®F

5

Labor Insulation

>400 ®F

Liquid and Slurry

5

Labor Buildings

Gas Processes

4

Labor Structural Steel

Solids-Gas Processes

Material

Material Labor


6



36 of 61 April 1991

APPENDIX B: TABLE B-4 -- DISTRIBUTIVE LABOR FACTORS FOR SETTING EQUIPMENT Equipment Type

Factor

Equipment Type

Factor

Absorber

20

Hammermill

25

Ammonia still

20

Heater

20

Ball mill

30

Heat exchanger

20

Blower

35

Knockout drum

15

Briquetting machine (with mixers)

25

Lime leg

15

Centrifuge

20

Methanator (catalytic)

30

Clarifier

15

Mixer

20

Coke cutter

15

Precipitator

25

Coke drum

15

Regenerator (packed)

20

Condenser

20

Retort

30

Conditioner

20

Rotoclone

25

Cooler

20

Screen

20

Crusher

30

Scrubber (water)

15

Cyclone

20

Settler

15

Decanter

15

Shift Converter

25

Distillation column

30

Splitter

15

Evaporator

20

Storage tank

20

Filter

15

Stripper

20

Fractionator

25

Tank

20

Furnace

30

Vaporizer

20

Gasifier

30

Water scrubber

20

Factors to determine the labor cost t o set equipment onto prepared foundations/supports includes costs for rigging, alignment, grouting, making equipment ready for operation, etc. The money allowed is to a great extent a matter of judgement. The following general rules are offered as an aid: 1.

Equipment such as hoppers, chutes, etc. (no moving parts) require a setting cost of about 10% of the bare equipment

2.

Rotary equipment such as compressors, pumps, fans, etc. require a setting cost of about 25% of the bare equipment

purchased cost. purchased cost. 3.

Machinery such as conveyors, feeders, etc. require a setting cost about 15% of bare equipment purchased cost.

Historical workhour requirements are more desirable than these factors, if available. The factors do not work well for very large equipment. For example, a $750,000 compressor does not require 25% of the bare equipment cost to set same on the foundation and to "run-it-in." The listing above provides approximate factors for specific other types of equipment.




37 of 61 April 1991

APPENDIX B: TABLE B-5 -- SUMMARY OF INDIRECT FIELD COSTS

Indirect Field Labor Supervision Accounting Field Engineering Staff Engineering Warehousing Service Personnel

Labor Benefits Craft Fringe Benefits Travel Daily Transportation Fringe Benefits Subsistence Show-up Time

Construction Support Temporary Buildings Temporary Roads Construction Utilities Utility Installation Utility Operation Field Communications

Payroll Taxes and Insurance

Construction Supplies Consumable Supplies Welding Supplies Safety Supplies Office Supplies Scaffolding Cleanup


Construction Camp Camp Set-up Camp Utilities Camp Operations Camp Facilities Equipment and Tools Construction Equipment Earthmoving Equipment Batch Plant Equipment Bldg. & Steel Erect. Equip. Pipe Erection Equipment Cars and Pickup Trucks Small Tools Equipment Servicing



38 of 61 April 1991

APPENDIX B: TABLE B-6 -- EXAMPLE OF ESTIMATION OF INDIRECT FIELD COSTS

Given: a. Total Direct Field Labor at $16/workhour [The sum of (1b) and (2b) of Table 3 for all major equipment] b. Labor benefits at 35% of Direct and Indirect Labor c. Direct Field Labor at $16/WH (average)

Calculations a. Direct Field Labor at $16/WH (given) b. Direct Field Labor at $20/WH = (400)(20/16) = $500 c. Factor for Indirect Field Labor at $20/WH and 500,000 Direct Labor (Figure B-1) = 27% d. Indirect Field Labor at $16/WH = (0.27)(500)(16/20) e. Total Direct and Indirect Field Labor = a + d f. Labor Benefits at 35% (given) of Total Direct and Indirect Field Labor = (0.35) (508) g. Indirect Field Cost Factor at $20/WH and $500 Direct Field Labor = 60% (Figure B-1) h. Indirect Field Costs (excl. benefits and tools) at $16/WH = (0.60)(400)(16/20) i. Small tools at 3.5% of 400,000 j. Total Indirect Field Costs = (f+h+i) = 179+192+18


$400,000

Dollars (Thousands) 400

108 508 179

192 18 389



39 of 61 April 1991

APPENDIX B: TABLE B-7 -- SUGGESTED FORMAT FOR TOTAL PLANT COST DETAIL Plant Section

Purch.

Inst.

Direct Indirect Subtotal Gen'l Facil. Home Office Contingencies Total Plant Cost

Equip.

Mat'l. Labor

Labor

& Fees

Proc.

Pretreating

a

Reaction

b

Separation

c

Utilities

d

Proj.

Etc. Subtotals A. Total Capital

f

g

h

i

A

B

C

D

E

F

A

Process B. Gen’l. Facil.

B

C. Home Office

C

Ovhd. & Fee D. Proc. Cont.

D

E. Proj. Cont.

E

Total Plant

F




40 of 61 April 1991

APPENDIX B: TABLE B-8 -- ANNUAL OPERATING COST SUMMARY

(*)

$000/yr Subtotal

Rounded

Raw Materials Less Byproducts Raw Material No. 1 (7884 x units/hr x $/unit) Byproducts

xxx

No. 2

xxx

No. 1

(xxx)

No. 2

(xxx)

Total Raw Materials and Byproducts Utilities and Chemicals

xxx xxx

Process Fuel (7884 x units/hr x $/unit)

xxx

Fuel for Steam Production (7884 x units/hr x $/unit)

xxx

Power (7884 x KWH/hr x $/KWH)

xxx

Chemical

No. 1 (7884 x units/hr x $/unit)

xxx

No. 2 (7884 x units/hr x $/unit)

xxx

Catalysts (7884 x units/hr x $/unit)

xxx

Total Utilities and Chemicals

xxx

Labor, Direct Direct Oper. Labor (365 x 24 x workers/shift x $/hr)

xxx

Direct Superv. Labor at 15% of Dir. Oper. Labor

xxx

Maintenance Labor at 3% of Total Plant Cost

xxx

Total Direct Labor = (xxx) Indirect Labor at 75% of Direct Labor

xxx xxx

Total Annual Labor

xxx

Other Costs Payroll Overhead at 35% of Total Annual Labor

xxx

Maint. Mat'l. Costs at 3% of Total Plant Cost

xxx

Ind. Mat'l Costs at 25% of Total Direct Labor

xxx

Prop. Taxes and Ins. at 2% of Total Plant Cost

xxx

Admin. and Corporate at 60% of Total Labor

xxx

Selling at 10% of Total Sales

xxx

Total Other Cost Total Annual Operating Costs

xxx xxx

(*) At 90% Operating Time/Year: (0.9)(365)(24 hrs/day) = 7884 oper. hrs./yr.




41 of 61 April 1991

APPENDIX B: FIGURE 1 – INDIRECT FIELD COSTS




42 of 61 April 1991

APPENDIX C - FINANCIAL ANALYSIS TABLE C-1 -- MACRS CLASS LIFE AS DETERMINED BY ADR CLASS LIFE

Modified ACRS Class Life (years)

ADR Class Life (years)

5

More than 4 but less than 10

7

10 or more but less than 16

10


15


20

25 or more




43 of 61 April 1991

APPENDIX C: TABLE C-2 --MODIFIED ACRS DEPRECIATION TABLES* FOR 1987 AND BEYOND THE YEARLY APPLICABLE PERCENTAGES FOR THE ASSET CLASS LIFE)

3

5

7

10

15

20

1

33

20

14

10

5

4

2

45

32

25

18

10

7

3

22

19

17

14

9

7

4

15

13

12

8

6

5

14

11

9

7

6

6

10

8

7

5

7

10

8

6

5

8

7

6

5

9

7

6

5

10

7

6

5

11

6

5

12

6

5

13

6

5

14

6

5

15

6

5

16

4

17

4

18

4

19

4

20

4

Sum

100

100

100

100

100

100

*

The depreciation schedules shown assume the midyear convention for depreciation. For the 3, 5, 7, and 10-year MACRS class life property, the depreciation method is the 200% declining-balance method with a switch to straight-line depreciation at the time that maximizes the deduction. The depreciation method for 15 and 20 years MACRS class life property is 150% declining-balance method with a switch to straightline depreciation at the time that maximizes the deduction.




44 of 61 April 1991

APPENDIX C: TABLE C-3 -- ADR CLASS LIVES FOR EQUIPMENT AND THEIR ESTIMATED LIVES

ADR Class Life, Years

Estimated Economic Life, Years

Petroleum refining

16

24

Manufacture of textile mill products: Knitwear and knit products Textile mill products (except knitwear) Finishing and dyeing

9 14 12

14 21 18

Manufacture of paper products: Pulps Paper

16 12

24 18

Manufacture of chemicals and allied products

11

17

Manufacture of rubber and plastics: Rubber products Finished plastics

14 11

21 17

Manufacture of leather

11

17

Manufacture of stone, clay, glass and concrete: Glass products Cement Stone and clay products

14 20 15

21 30 23

Manufacture of primary metals: Ferrous metals Nonferrous metals

18 14

27 21

Manufacture of fabricated metal products

12

18

Manufacture of machinery: Metalworking machinery Electrical equipment Other machines

12 12 12

18 18 18

Process




45 of 61 April 1991

APPENDIX C: TABLE C-4 -- MODEL METHODOLOGY

The principal assumptions that may be used in the model are outlined in Table C-5. Key assumptions are those that are intrinsic to the methodology and would be difficult for a user to modify for a special application of the model. All other assumptions could be easily modified by the user if needed. For example, the cash flow equations presented assume uniform escalation relative to a reference base year. A more complicated cash flow pattern may be modeled by entering each individual year's estimated cash flow manually. The analytical methodology used in calculating cash flows, present values, and economic measures-of-merit are discussed below. Economic nomenclature used is shown in Table C-6. Cash Flow Calculations During the construction period for CIn, one of many possible initial capital investment categories, the nominal dollar cash flow for year i (assuming uniform construction payout) is:

CIni #

CIn CT

* (1 " CIn g )

( i !CIn p )

(Equation 1) where CIni = nominal dollar cost in year i CIn = total "overnight" cost estimate in year CIn p dollars CT = construction time CIn g = escalation rate of CIn CIn p = price year for CIn. Total Initial Capital Investment Total initial capital investment in year i (CIT i ) is equal to the summation of all individual initial capital investments in year i . Interim Capital Investment (n) Interim capital investments are assumed to occur in a single year (rather than being spread out over several years as for plant construction). During the year that an interim capital investment occurs, the nominal dollar cash flow for one of many possible interim capital replacements is:

ICIni # ( ICIn ) * (1 " ICIn g )

( i ! ICIn p )

(Equation 2) where ICIni = nominal dollar cost in year i for an individual interim capital replacement ICIn = total cost estimate in year ICIn p dollars ICIn g = escalation rate for ICIn ICIn p = price year for ICIn Total Interim Capital Investment Total interim capital investment in year i ( ICIT i) is equal to the summation of all individual interim capital investments in year i .




46 of 61 April 1991

Operation and Maintenance (O&M) (n) O&M costs (including fuel expenses) begin in year 1 and occur throughout the plant's operating lifetime. For each of the many possible O&M categories, O&M costs in year i are calculated as:

O & Mni # O & Mn * (1 " O & Mn g )

( i !O & Mn p )

(Equation 3) where O&Mni = nominal dollar cost in year i O&Mn = total cost estimate in year O&Mn p dollars O&Mn g = escalation rate for O&Mn O&Mn p = price year for O&Mn. Total O&M Total O&M in year i (O&MT i) is equal to the summation of all individual O&M costs in year i . Revenue (n) Plant revenues begin in year 1 and occur throughout the plant's operating lifetime. For each possible revenue category, revenues in year i are calculated as:

Rni # Rn * (1 " Rn g )

( i ! Rn p )

(Equation 4) where Rni = nominal dollar revenue in year i Rn = revenue estimate in year Rn p Rn g = escalation rate for Rn Rn p = price for year Rn. Total Revenue Total revenue in year i ( Rt i ) is equal to the summation of all individual revenues in year i . Depreciation (n) For initial capital investments, depreciation is assumed to begin in year 0. For interim capital investments, depreciation is assumed to begin in the year in which the investment takes place. Depreciation for both initial and interim capital investments continues until the end of the plant's operating life, or the assets depreciable life, whichever comes first. Depreciation for each possible initial capital investment and subsequent interim capital investments in year i is calculated as:

Dni # Dn * DPF i (Equation 5) where Dni is depreciation in year i , Dn is total asset cost (summation of all nominal dollar cash flows), and DPF i is the depreciation factor for year i (depends on asset life and depreciation tables). Total Depreciation




47 of 61 April 1991

Total depreciation in year i ( DT i) is equal to the summation of all individual depreciation expenses in year i . Salvage Value (if considered) All salvage value occurs in the year following the last year of plant operation. Salvage values are possible for all categories of initial capital investment. The salvage value for each initial capital investment category, CIn, is calculated as:

SCIn # (CIn) * svf * (1 " CIn g )

( L "1!CIn p )

(Equation 6) where SCIn = the nominal dollar salvage value for CIn CIn = total "overnight" cost estimate in year CIn p dollars svf = salvage value fraction CIn g = escalation rate for CIn L = plant operating life CIn p = price year for CIn. Total Salvage Value The total salvage value (SCIT) is equal to the summation of all individual salvage values. Property Tax Property tax payments begin in year 1 and continue throughout the plant's operating life. Property tax payments are calculated as:

PT i # CIT $ ptf (Equation 7) where PT i = property tax payment in year i CIT = total capital investment for property tax assessments. This is calculated as the summation of all nominal dollars for all categories of initial capital investment ptf = property tax fraction rate. Taxable Income Taxable income in year i (TI i) is calculated as:

TI i # RT i " SCIT i ! O & MT i ! DT i ! PT i (Equation 8) where RT i, SCIT i , O&MT i , DT i , and PT i were defined previously. Income Taxes The income tax payment in year i ( IT i) is calculated as:




48 of 61 April 1991

IT i # TI i $ itf (Equation 9) where itf is combined state and federal income tax rate, and TI i was defined in Equation 8. After-Tax Cash Flow The after-tax cash flow in year i ( ATCF i) is calculated as:

ATCF i # TI i " DT i ! IT i ! CIT i ! ICIT i (Equation 10) where TI i, DT i, IT i , CIT i, and ICIT i were defined previously. Present Value ( PV ) Calculations PV OF CAPITAL INVESTMENT The present value of a capital investment occurring in year i is calculated as:

CIN pvi #

CIni (1 " CInk ) i (Equation 11)

where CIN pvi is the present value of CIni , CIN k is the discount rate for capital investment n, and CIni was defined in Equation 1. The total present value for each initial capital investment category (CIn pv) is equal to the summation over all i of CIn pvi . The PV for all initial capital investments (CIT pv) is equal to the summation over all of CIn pv. PV OF CAPITAL INVESTMENT-RELATED INCOME TAX The present value of the income taxes generated by initial capital investment cash flows is accounted for by the depreciation streams. PV OF INTERIM CAPITAL INVESTMENT The present value of an interim capital investment occurring in year i is calculated as:

ICIn pvi #

ICIni (1 " ICInk ) i (Equation 12)

where ICIn pvi is the present value of ICIni , ICInk is the discount rate for interim capital investment n, and ICIni was defined in Equation 2. The total present value for ICIn ( ICIn pv) is equal to the summation over all i of ICIn pvi . The PV for all interim capital investments ( ICIT pv) is equal to the summation over all n of ICIn pv.




49 of 61 April 1991

PV OF INTERIM CAPITAL INVESTMENT-RELATED INCOME TAX The present value of the income taxes generated by interim capital investment cash flows is accounted for by the depreciation streams. PV OF O&M The present value of an O&M expense occurring in year i is calculated as:

O & Mn pvi #

O & Mni (1 " O & Mnk ) i (Equation 13)

where O&Mn pvi is the present value of O&Mni , O&Mnk is the discount rate for O&M category n, and O&Mni was defined in Equation 3. The total present value for O&Mn (O&Mn pv) is equal to the summation over all i of O&Mn pvi . The PV for all O&M expenses ( O&MT pv) is equal to the summation over all n of O&Mn pv. PV OF O&M-RELATED INCOME TAX The present value of the income taxes generated by O&Mn (O&Mn pvt ) is calculated as:

O & Mn pvt # !O & Mn pv $ itf (Equation 14) where O&Mn pv was defined above and itf was defined in Equation 9. The negative sign indicates that O&M expenses generate income tax savings. The PV for all income taxes generated by O&M expenses ( O&MT pvt ) is equal to the summation over all n of O&Mn pvt . PV OF REVENUE The present value of a revenue occurring in year i is calculated as:

Rn pvi #

Rni (1 " Rnk ) i (Equation 15)

where Rn pvi is the present value of Rni , Rnk is the discount rate for revenue category n, and Rni was defined in Equation 4. The total present value for Rn ( Rn pv) is equal to the summation over all i of Rn pvi . The PV for revenues ( RT pv) is equal to the summation over all n of Rn pv. PV OF REVENUE-RELATED INCOME TAX The present value of the income taxes generated by Rn ( Rn pvt ) is calculated as:

Rn pvt # " Rnpv % itf (Equation 16) where Rn pv was defined above, and itf was defined in Equation 9. Copyright 2003 AACE, Inc.



50 of 61 April 1991

The positive sign indicates that revenues generate income tax payments. The PV for all income taxes generated by revenues ( RT pvt ) is equal to the summation over all n of Rn pvt . PV OF DEPRECIATION The present value of depreciation occurring in year i is calculated as:

Dn pvi #

Dni

&1 " Dnk 'i (Equation 17)

where Dn pvi is the present value of Dni , Dnk is the discount rate for depreciation, and Dni was defined in Equation 5. The total present value for Dn ( Dn pv) is equal to the summation over all i of Dn pvi . The PV for all depreciation ( DT pv) is equal to the summation over all n of Dn pv. PV OF DEPRECIATION-RELATED INCOME TAX The present value of the income taxes generated by Dn ( Dn pvt ) is calculated as:

Dn pvt # ! Dn pv % itf (Equation 18) where Dn pv was defined above, and itf was defined in Equation 9. The negative sign indicates that depreciation expenses generate income tax savings. The PV for all income taxes generated by depreciation ( DT pvt ) is equal to the summation over all n of Dn pvt . PV OF SALVAGE VALUE The present value of salvage value occurring in year i is calculated as:

SCIT pvi #

SCIT i

&1 " SCIT k 'i (Equation 19)

where SCIT pvi is the present value of SCIT i, SCIT k is the discount rate for salvage value, and SCIT i was defined previously.




51 of 61 April 1991

PV OF SALVAGE VALUE-RELATED INCOME TAX The present value of the income taxes generated by salvage value ( SCIT pvt ) is calculated as:

SCIT pvt # " SCIT pv % itf (Equation 20) where SCIT pv is SCIT pvi (all salvage occurs in the same year), and itf was defined in Equation 9. The positive sign indicates that salvage value generates income tax payments. PV OF PROPERTY TAX The present value of property tax occurring in year i ( PT pvi ) is calculated as:

PT pvi #

PT i

&1 " PT k 'i (Equation 21)

where PT pvi is the present value of PT i , PT k is the discount rate for property tax value, and PT i was defined in Equation 7. The total present value for all property tax payments ( PT pv) is equal to the summation over all i of PT pvi . PV OF PROPERTY TAX-RELATED INCOME TAX The present value of the income taxes generated by property taxes ( PT pvt ) is calculated as:

PT pvt # ! PT pv % itf (Equation 22) where PT pv was defined above, and itf was defined in Equation 9. The negative sign indicates that property tax expenses generate income tax savings. PV OF INCOME TAXES The present value of all income tax expenses ( IT pv) is calculated as:

IT pv # O & MT pvt " RT pvt " DT pvt " SCIT pvt " PT pvt

(Equation 23) where OMT pvt , RT pvt , DT pvt , SCIT pvt , and PT pvt were defined previously.




52 of 61 April 1991

PV OF AFTER-TAX CASH FLOW The present value of all after-tax cash flows ( ATCF pv) is calculated as:

ATCF pv # & RT pv " SCIT pv ' ! &O & MT pv " PT pv " IT pv ' ! &CIT pv " ICIT pv '

(Equation 24) where RT pv, SCIT pv, O&MT pv, PT pv, IT pv, CIT pv, and ICIT pv were defined previously. Measure of Merit Calculations NET PRESENT VALUE The net present value (NPV) of the project is equal to ATCF pv, described above. PROFITABILITY RATIO The profitability ratio is defined as the project's net present value divided by the present value of the initial capital investments; the higher the profitability ratio, the better. The profitability ratio is calculated as:

Profitability Ratio #

ATCF pv CIT pv

(Equation 25) where ATCF pv and CIT pv were defined previously. Internal Rate of Return The internal rate of return is equal to the discount rate that would result in a present value of zero for the after-tax cash flows. The internal rate of return may be calculated using the Lotus @IRR function. Payback Period The payback period is the first year that the cumulative after-tax cash flows for the project are positive. Discounted Payback Period The discounted payback period is the first year that the cumulative present value of the after-tax cash flows for the project are positive. Nominal Annualized Production Cost The nominal annualized production cost is a constant cost in nominal dollars that, over the lifetime of the project, would result in a present value equal to the present value of all project costs. The nominal annualized production cost is calculated as:




53 of 61 April 1991

NAPC #

CIT pv " ICIT pv " &O & MT pv " PT pv '% &1 ! itf ' ! DT pv % itf % CRF

&1 ! itf '% PR (Equation 26)

where NAPC = nominal annualized production cost, $ per unit of output CIT pv = present value of initial capital costs ICIT pv = present value of interim capital costs O&MT pv = present value of O&M costs PT pv = present value of property taxes itf = combined state and federal income tax fraction DT pv = present value of depreciation CRF = capital recovery factor, % fraction (defined below) PR = annual production rate (assumed constant in each year). The CRF in the equation for NAPC is calculated as:

CRF #

k 1 ! (1 " k ) ! L (Equation 27)

where k is the appropriate overall discount rate to use in these types of calculations, and L is the project's operating life. Real Annualized Production Cost The real annualized production cost (RAPC) is a constant cost in real dollars that, over the lifetime of the project, would result in a present value equal to the present value of all project costs. The real annualized production cost is calculated as:

RAPC #

NAPC CRF

%

&k ! g ' / 5 &1 " g ' 2 L , &1 " g '% -1 ! 33 00 * 1 k & ' " 1 *+ -. 4 (Equation 28)

where RAPC is the real annualized production cost in $/unit of output; g is the general inflation rate; and NAPC , CRF , k , and L were defined previously.




54 of 61 April 1991

APPENDIX C: TABLE C-5 -- SUGGESTED MODEL ASSUMPTIONS KEY ASSUMPTIONS •

All cash flows are expressed in nominal year dollars.

•

All cash flows are assumed to occur at the end of the year.

•

The base year for discounting cash flows is year 0. All cash flows occurring in year 0 are not discounted (i.e., the present value equals the cash flow), with cash flows occurring in all other years being discounted appropriately.

•

An effective combined income tax rate is used to cover both state and federal income taxes.

•

The project owner is assumed to have other income that can be shielded by tax losses. This results in negative income tax payments being treated as positive after-tax cash flows.

ASSUMPTIONS THAT CAN BE EASILY MODIFIED BY USER •

Capital costs during construction are assumed to be split equally among each of the construction years. Otherwise, where uniform construction payout is not valid, the cash flows can be manually entered (in nominal dollars) in each year.

•

Interim capital costs are assumed to take place within a single year.

•

Property taxes are constant throughout the life of the plant and are calculated as a fraction of the total nominal dollar cost of the initial project capital investment.

•

All revenues and operating expenses will commence in year 1 and continue for the life of the project.




55 of 61 April 1991

APPENDIX C: TABLE C-6 -- ECONOMIC NOMENCLATURE for MODEL

APC ATCF CIn CIT CRF CT Dn DPF DT ICIn ICIT IT L NAPC NPV O&MT O&Mn PR PT RAPC Rn RT SCIn SCIT TI g i itf k ptf svf

annualized production cost ($/unit of annual output) after tax cash flow ($) initial capital investment for one of the cost categories, measured as "overnight" costs, i.e., costs excluding interest and escalation during construction ($) total initial capital investment, the sum of all CIn($) capital recovery factor construction time (years) total investment for an initial capital investment or an interim capital investment ($) depreciation factor total depreciation ($) an interim capital investment ($) total interim capital investment ($) income tax payment ($) plant operating life (years) nominal annualized production cost ($/unit of annual output) net present value ($) total operation and maintenance expenses ($) an annual operation and maintenance expense ($) annual production rate (units/year) property tax payment ($) real annualized production cost ($/unit of annual output) one of five revenue streams ($) total revenue ($) salvage value for CIn ($) total salvage value ($) taxable income ($) general inflation rate (%) the year i or the i th year income tax rate (%) overall discount rate property tax rate (%) salvage value fraction (%)

Subscripts dedi deductible as an expense in year i escalation rate for a cash flow stream g i a cash flow stream occurring in year i discount rate for a cash flow stream k p reference price year for a cash flow stream pv present value of a cash flow stream pvi present value of a cash flow stream occurring in year i pvt present value of income taxes generated by a cash flow stream




56 of 61 April 1991

APPENDIX D - Report Content: TABLE D-1 -- CHECKLIST OF REPORT REQUIREMENTS

Design ____ ____ ____ ____ ____

Plant size and basis for selecting Detailed process flow block diagram and stream summaries showing rates and compositions of all streams, temperatures, and pressures, residence or reaction time for all reactors, etc. Energy flow diagram Equipment list (see Appendix A for examples) Deviations from design prem ises (Table D-3)

Capital Costs ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____

Major equipment cost references Equipment and utility summ ary (Table B-2) Craft labor rates, equipment setting, concrete, steel, etc. $/work-hour Productivity factor for location relative to Houston-Gulf Coast Material and labor factors used if different than those in Tables B-3 and B-4 and r eported in Table D-3 Direct field labor average, $/work-hour Fringe benefits as a % of labor costs if diff erent than 35% Percent factor used for small tools portion of Indirect Plant Percent factor used for General Facilities if different than 15% of Total Process Capital Percent factor used for Hom e Office, Overhead and Fee (contractor + client) if different than 15% Contingency factor breakdown Prepaid royalty factor(s) if different than 0.5% of total process capital. Working capital basis if different than 2 months of total annual operating expense Spare parts inventory factor if different than 0.5 of 1% Initial catalyst and chemicals basis Land Cost - acres required and $/acre Storage time of raw materials, chemicals and fuels

Operating Costs ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____

Raw material and byproduct unit costs used and source of data Documentation of yields to arrive at quantities Utility and chemical requirements (totals of Table B-2) Purchased power costs, $/KWH Fuel requirements and unit cost used Chemical unit costs Basis for operating labor requirements (Wessel article, experience, other) Average operating labor rate used Supervisory labor percent of direct labor if other than 15% Maintenance labor if other t han 3% of total plant cost Maintenance material if other than 3% of total plant cost Indirect labor if other than 75% of direct labor Indirect material if other than 25% of direct labor Payroll overhead same as fringe benefits under capital costs. If different than fringe benefits and/or 35% of total labor, so specify Property taxes and plant insurance, if different than 2% of total plant cost Was general equation used? (See text)




57 of 61 April 1991

Financial Analysis ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____

Timing of cash flows if different than recommended Total capital requirement timing if different than divided equally over the construction period Timing of depreciation if different than last year of construction; revenue, total expense and taxes if other than the year after capital is expended Table of unescalated cash flows Escalating factors used, if any ADR class life assumed (Table C-3) Federal tax rate if different than 34% Combined federal and state (after assuming federal tax credit for state) if dif ferent than 39.1% Is salvage considered? Is debt interest included in cash flow? Weighted cost of capital (after tax) if other than 9.3% Debt and equity fraction if other than 32% and 68%, respectivel y




58 of 61 April 1991

(*)

APPENDIX D - Report Content: TABLE D-2 -- MINIMUM REQUIREMENTS FOR REPORT

(*) To be used for publication in trade journals or other special circumstances. Process Flow Diagram Table B-1 Table B-2 (without the detail of each piece of equipment) Table B-7 Table B-8 Table D-3




59 of 61 April 1991

(*)

APPENDIX D – Report Content: TABLE D-3 -- TABLE OF DEVIATION FROM PRACTICE

(*) See text for discussion of individual factors recommended Recommended Design Premises Plant location Sparing • • • Capital Costs Material and labor factors Fringe benefits Small tools factor General facilities factor Home office overhead and fee (contractor + client) Prepaid royalties Working capital basis Spare parts inventory Storage time Fuel Chemicals Raw materials Operating Costs Supervisory labor Maintenance labor Maintenance material Indirect labor Indirect material Payroll overhead Property taxes and insurance Corporate overhead Selling expense Financial Analysis Cash flow timing Total cap. requirement Revenue, oper. costs, and taxes Depreciation ADR class life Federal tax rate Combined federal and state tax rate Salvage Debt interest Weighted cost of capital (after tax) Debt fraction of corporation Equity fraction Escalation factors [Assume an Annual Growth Rate (specify*)] Capital Labor for oper. costs Fuel and power All other oper. exp.

Deviation

U.S. Gulf Coast (Houston) 90% availability (excl. planned maintenance)

See Tables B-3 and B-4 35% of total labor 3-5% direct field labor 15% of total process capital (TPC) 15% of TPC 0.5% of TPC 2 months annual operating cost 0.5% of TPC 90 days 90 days 90 days 15% of direct labor 3% of total plant cost 3% of total plant cost 75% of total direct labor 25% of total direct labor Same as for capital costs 2% of total plant cost 60% of total labor 10% of sales Divided equally over the years of construction One year after capital expended Starts in last year of capital expenditure See Table C-3 34% 39.1% Not considered Not included if weighted cost of capital used in NPV calculation 9.3% (see text) 32% 68% AGR AGR + 1% AGR + 1% AGR

(*) e.g. the Consumers Price Index (CPI) Annual Growth Rate or other rate as deemed appropriate.




60 of 61 April 1991

APPENDIX D – Report Content: TABLE D-4 -- SUMMARY OF REPORT DESCRIPTIVE MATERIAL (1)

1. Summary and Conclusions 1.1 Summary of Plant Requirements and Goals 1.2 Performance Summary 1.3 Cost Summary 1.3.1 Capital Cost, $MM 1.3.2 Operating Cost, $MM/yr 1.3.3 Operating Cost, $/unit of production 1.3.4 Measures of Merit 1.3.4.1 NPV 1.3.4.2 IRR 1.3.4.3 Payback Period 1.3.4.4 Others 1.4 Sensitivity study results 1.5 Conclusions as to viability of process/plant (2)

2.

Process/Plant Description 2.1 Plant Design Objectives and Requirements 2.1.1 Overall Plant Objectives 2.1.2 Performance Objectives and Requirements 2.1.3 Plant Interface Requirements 2.1.4 Operational Objectives and Requirements 2.1.5 Configuration 2.1.6 Environmental Considerations 2.1.7 Safety 2.1.8 Maintenance 2.1.9 Instrumentation 2.1.10 Plant Facilities 2.1.11 Codes and Standards 2.2 Plant Sections/Major Systems 2.2.1 Pre-treating Section(s) 2.2.2 Reaction Sections 2.2.3 Separation Section(s) 2.2.4 Environmental Section(s) 2.2.5 Plant Utilities 2.2.6 Plant Facilities 2.2.7 Plant Facilities 2.3

2.4 2.5

Plant Performance and Operation 2.3.1 Plant Process Description 2.3.2 Plant Performance Evaluation 2.3.3 Plant Operation and Control (Normal and Start-up) Plant Site Description Other Descriptions) (3)

3.

Assumptions 3.1 Technical 3.2 Cost

4.

Capital Investment

5.

Sensitivity Studies


(4)

(5)


16R-90

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