AACEI RecommendedPractice No.16R-90

Copyright 2003 AACE, Inc.
AACE International Recommended Practices

AACE International Recommended Practice No. 16R-90

CONDUCTING TECHNICAL AND ECONOMIC EVALUATIONS
AS APPLIED FOR THE PROCESS AND UTILITY INDUSTRIES
TCM Framework: 3.2 Asset Planning, 3.3 Investment Decision Making

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
AACE International Recommended Practice No. 16R-90
CONDUCTING TECHNICAL AND ECONOMIC EVALUATIONS
AS APPLIED FOR THE PROCESS AND UTILITY
INDUSTRIES
TCM Framework: 3.2 Asset Planning, 3.3 Asset Performance Assessment
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 (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 As Applied for the Process and Utility
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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 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. 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 of individuals on this project who represent the private sector,
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
tm
- 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.

5. DEFINITIONS

5.1 For the purpose of this document the following terms are defined, (Other terms used are
defined in AACE Recommended Practice 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 Recovery 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. Raw material feed rates and composition of all streams.
b. Temperature and pressure of all streams.
c. Residence or reaction time for all reactors.
d. 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: 150F

Amine regenerator (2 required)
Size: 19' ID X 84' high

Caustic precontactor (2 req'd)

Caustic contactor (2 required)
Size: 4'6" ID X 61' high

Amine knockout drum (2 required)
Size: 12' ID X 16'6" high

Amine flash drum (2 required)

Regenerator reflux drum (2 req)

Amine sump (2 required)
Operating pressure: atmospheric

Sand filters (4 required)

Carbon filters (4 required)

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, compress, 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: Material: Labor:
Delivered equipment costs a
Labor for handling and placing bare equipment b
Installation material c
Associated Installation labor d
Total Direct Material a+c
Total Direct Labor b+d
Total Direct Capital 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 B-
3. 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 Labor
Foundations $ 600 $ 800
Structures 500 250
Buildings 300 300
Insulation 200 300
Instruments 700 525
Electrical 600 240
Piping 4,000 2,000
Painting 50 150
Miscellaneous 400 320
Total $7,350 $4,885

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

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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
Labor,
dollars
Total cost,
dollars
Fermenter 8 904,800 90,500
Fermenter agitator 8 112,000 11,200
Fermenter cooler 4 519,200 51,900
Fermenter circ. pump 8 170,400 25,600
Fermenter cleaner 8 16,000 1,600
Beer well 1 195,800 19,600
Beer well agitator 2 28,000 2,800
Beer well cleaner 1 3,000 300
Sterilant scale 1 1,400 100
Sterilant pump 1 1,100 200
Sterilant tank 1 14,500 1,500
Sterilization pump 1 18,500 2,800
Sterilant tank agitator 1 1,300 100
Distillation feed pump 2 44,000 6,700
CO
2
Offgas scrubber 1 55,400 5,500
Scrubber pump 1 3,200 500
Scrubber blower 1 30,000 4,500
Scrubber chiller 1 30,000 3,000
2,148,600 228,400 2,377,00
Foundations 96,700 128,600
Structures 85,900 43,000
Buildings 85,900 85,900
Insulation 21,500 32,300
Instrumentation 107,400 43,000
Electrical 128,900 96,700
Piping 537,200 134,300
Painting 7,500 25,800
Miscellaneous 85,900 68,700
1,158,000 658,300 1,816,300
Total Direct 3,306,600 886,700 4,193,300

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Table 4. Direct Capital Cost Summary

Cost
Item
(dollars)

Quantity
Cost

Material
(dollars)

Labor

Total
1. ............... (Delivered See labor
2. ..(Individual.. equipment factors
3. ...equipment... cost) for bare
4. ....items)..... equipment
5. ...............
...............
...............
............... ________ ________ _________
Subtotals......... .......... Line 1-A Line 1-B Line 1
Foundations....... ..........
Structures........ ..........
Buildings......... .......... Base on Base on
Insulation........ .......... line 1-A individual
Instrumental...... .......... (see Table material
Electrical........ .......... B-3) items
Piping............ .......... (see Table
Painting.......... .......... B-3)
Miscellaneous..... .......... _______ _______ _______
Total Direct.... .......... Line 1-A Line 2-B Line 2

12.4.4 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 Process Contingency Allowances as
Percentages of Total Process Capital Cost
New concept with limited data 40+
Concept with bench-scale data 30% to 70%
Small pilot plant data 20% to 35%
Full-size modules have been operated 5% to 20%
Process is used commercially 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

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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 should evaluate the economic feasibility of process plants and other
systems. It should generate projections of cash flows and calculate the economic measures-of-merit
discussed previously to help generate the economic feasibility of the system being 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 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 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 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 the appropriate MACRS class life.

Table C-2 shows the MACRS Depreciation Table 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 C-
1), 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: Table C-3 also lists the approximate economic life 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 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 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 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 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% of the escalated total plant
investment for property taxes. The 1986 Tax Reform Act rate of 34% can be 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 value.

Salvage: Salvage represents the cost or credit associated 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 of risk similar to a company's
current business is equal to its weighted average cost of capital. Assuming a debt fraction of 32% 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 of the project is
calculated from the other cash flows. The present value of all after-tax cash flows is calculated as follows:

ATCF
pv
= (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) 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 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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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.

14. 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):

BLENDER, ROTARY DRUM
MATERIAL:
BULK MATERIAL DENSITY (lb/cu ft):

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:
DIAMETER (in.):
HORSEPOWER (hp):

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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):

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):

CRUSHER, CONE
MATERIAL:
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):

CRUSHER, SINGLE ROLL CRUSHER
MATERIAL:
CAPACITY (tph):
ROLL SIZE (eg, in. diam x in. length)

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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):
SPEED (rpm):

EVAPORATOR, LONG TUBE FILM
MATERIAL, SHELL:
MATERIAL, TUBES:
CAPACITY (lb/hr):
CAPACITY (gal):
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):

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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:
LEAF AREA (sq ft):

FILTER, PRESSURE LEAF-WET
MATERIAL:
LEAF AREA (sq ft):

FILTER, PLATE AND FRAME
MATERIAL:
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):
SPEED (rpm)
HORSEPOWER (hp):

FILTER, SCROLL
MATERIAL:
CAPACITY (tph):
SCREEN DIAMETER (in):
FEED SIZE (medium or fine):

FILTER, SEWAGE
MATERIAL:
CAPACITY (lb/hr):

FILTER, SPARKLER
MATERIAL:
CAPACITY (cu 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 (lb-
moles):
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):
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):
NUMBER OF BAYS:

HEAT EXCHANGER, FIN TUBE
MATERIAL:
TUBE LENGTH (ft):
NUMBER OF EXTERNAL FINS:
NUMBER OF TUBES PER BUNDLE:

HEAT EXCHANGER, JACKETED
(AS PER FIN TUBE)

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HEAT EXCHANGER, SPIRAL PLATE
MATERIAL:

HEAT EXCHANGER, SUCTION HEATER
MATERIAL:

HEAT EXCHANGER, TANK HEATER (ELECTRIC)
MATERIAL:
CAPACITY (kw):

HEAT EXCHANGER, TANK HEATER (STEAM COIL)
MATERIAL:
CAPACITY (lb/hr):
PIPE DIAMETER (ft):

HEAT EXCHANGER, THERMASCREW (REITZ)
MATERIAL:

HEAT EXCHANGER, TWO SCREW
MATERIAL:

HEAT EXCHANGER, WASTE HEAT (WASTE HEAT
BOILER)
MATERIAL:
CAPACITY (lb/hr):

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):

HORIZONTAL TANK, MULTI-WALL
MATERIAL:
CAPACITY (gal):
DIAMETER (ft):
LENGTH (ft):
PRESSURE (psig):

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, micro-
pulverizer, 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):
LIQUID SPECIFIC GRAVITY:
POWER (hp):
POWER SOURCE (elec., steam, engine):
TYPE (reciprocation, simplex, duplex,
diaphragm, slurry, rotary):

PUMP, CENTRIFUGAL
MATERIAL:
CAPACITY (gpm):
HEAD (ft):
LIQUID SPECIFIC GRAVITY:
POWER (hp):
POWER SOURCE (electricity, steam, engine):
TYPE (single stage, in line, vertical, axial flow):

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REACTOR
MATERIAL:
CAPACITY (lb/hr):
INSIDE DIAMETER (ft):
TYPE (single stage, double stage, fluidized bed):

REBOILER
MATERIAL, SHELL:
MATERIAL, TUBE:
CAPACITY (mm btu/hr):
TUBE LENGTH (ft):
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, mechanical-
booster):

VERTICAL TANK, PROCESS
MATERIAL:
CAPACITY (gal):
DIAMETER (ft):
HEIGHT (ft):
PRESSURE (psig):
TYPE (cylindrical, multi-wall, shell, spheroid,
sphere, gas holder):

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VERTICAL TANK, STORAGE
MATERIAL:
VOLUME (gal):
DIAMETER (ft):
HEIGHT (ft):
PRESSURE (psig)
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):

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

I. 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
II. Prepaid Royalties
III. Start-up Costs
IV. Working Capital
V. Spare Parts
VI. Initial Catalyst and Chemicals
VII. Land
TOTAL CAPITAL REQUIREMENTS = I+II+III+IV+V+VI+VII

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

Cooling
water
Treated
Water
Power Item Quantity
required
Delivered
purchase
cost
Chemical
Cost
$/hr gpm mgph gpm mgph hp kwh/hr
Steam
required
mlbs/hr
Steam
produced
mlbs/hr
Net
Steam
mlbs/hr
Fuel
mmbtu/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 XXXX XXX XXX XXX (A) XXX XXX
Power for util.
kwh/hr
(C) (D) (B) (E)
Total power
kwh/hr
A+B+C
+D+E

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APPENDIX B: TABLE B-3 DISTRIBUTIVE FACTORS FOR BULK MATERIALS

Type of system: Coal Handling /
Stockpiling
Crushing, Grinding,
Conveying
Entrained
Gasification
Fluidized Bed
Gasification
Hot Gas
Cleanup [a]
Acid Gas
Scrubbing [b]
Foundations Material [c] 4 4 7 6 6 6
Labor [d] 133 133 133 133 50 133
Structural Steel Material 4 4 7 6 5 6
Labor 50 50 50 50 50 50
Buildings Material 2 2 2 2 5 4
Labor 100 100 100 50 50 100
Insulation Material 1 1 4 4 3 2
Labor 150 150 150 100 150 150
Instruments Material 6 4 7 7 6 7
Labor 40 40 40 40 40 40
Electrical Material 9 8 9 9 9 9
Labor 75 75 75 75 75 75
Piping Material 5 5 40 40 40 40
Labor 50 50 50 50 50 50
Painting Material 0.5 0.5 0.5 0.5 0.5 0.5
Labor 300 300 300 300 300 300
Miscellaneous Material 3 3 4.5 4 4 4
Labor 80 80 80 80 80 80
[a]: ex. Zinc ferrate
[b]: such as Seloxol and Benfield
[c]: Bare equipment cost x factor.
[d]: Material cost x factor.

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

Type of system: Solids Handling Solids-Gas Processes Gas Processes
Temperature: [400
F
>400
F
[400 F >400 F [400 F >400 F
Liquid and Slurry
Systems
Pressure:

[150
psig
>150
psig
[150
psig
>150
psig
[150
psig
>150
psig
[150
psig
>150
psig
[150
psig
>150
psig
Foundations Material 4 5 5 6 6 6 5 6 6 5 5 6
Labor 133 133 133 133 133 133 133 133 133 133 133 133
Structural Steel Material 4 2 4 4 5 6 5 5 5 6 4 5
Labor 50 100 100 100 50 50 50 50 50 50 50 50
Buildings Material 2 2 2 2 5 4 3 3 3 4 3 3
Labor 100 100 100 50 50 100 100 100 100 100 100 100
Insulation 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
Instruments Material 6 6 2 7 7 8 6 7 7 7 6 7
Labor 40 40 40 40 40 75 40 40 75 40 40 40
Electrical Material 9 9 6 8 7 8 8 9 6 9 8 9
Labor 75 75 75 75 75 75 75 75 40 75 75 75
Piping Material 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
Painting 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
Miscellaneous Material 3 4 3.5 4 4 4.5 3 4 4 5 4 5
Labor 80 80 80 80 80 80 80 80 80 80 80 80

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

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

Indirect Field Labor Labor Benefits
Supervision Craft Fringe Benefits
Accounting Travel
Field Engineering Daily Transportation
Staff Engineering Fringe Benefits
Warehousing Subsistence
Service Personnel Show-up Time

Construction Support Payroll Taxes and Insurance
Temporary Buildings
Temporary Roads Construction Camp
Construction Utilities Camp Set-up
Utility Installation Camp Utilities
Utility Operation Camp Operations
Field Communications Camp Facilities

Construction Supplies Equipment and Tools
Consumable Supplies Construction Equipment
Welding Supplies Earthmoving Equipment
Safety Supplies Batch Plant Equipment
Office Supplies Bldg. & Steel Erect. Equip.
Scaffolding Pipe Erection Equipment
Cars and Pickup Trucks
Cleanup Small Tools
Equipment Servicing

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

Given:

a. Total Direct Field Labor at $16/workhour - $400,000
[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)

Dollars
Calculations (Thousands)

a. Direct Field Labor at $16/WH (given) 400
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) 108
e. Total Direct and Indirect Field Labor = a + d 508
f. Labor Benefits at 35% (given) of Total Direct and Indirect
Field Labor = (0.35) (508) 179
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) 192
i. Small tools at 3.5% of 400,000 18
j. Total Indirect Field Costs = (f+h+i) = 179+192+18 389

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

Contingencies Plant Section Purch.
Equip.
Inst.
Mat'l.
Direct
Labor
Indirect
Labor
Subtotal Gen'l Facil. Home Office
& Fees Proc. Proj.
Total Plant Cost
Pretreating a
Reaction b
Separation c
Utilities d
Etc.
Subtotals f g h i A B C D E F
A. Total Capital
Process
A
B. Genl. Facil. B
C. Home Office
Ovhd. & Fee
C
D. Proc. Cont. D
E. Proj. Cont. E
Total Plant F

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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) xxx
No. 2 xxx
Byproducts No. 1 (xxx)
No. 2 (xxx)
Total Raw Materials and Byproducts xxx

Utilities and Chemicals 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) xxx

Indirect Labor at 75% of Direct Labor 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 xxx
Total Annual Operating Costs xxx
(*) At 90% Operating Time/Year: (0.9)(365)(24 hrs/day) = 7884 oper. hrs./yr.

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APPENDIX B: FIGURE 1 INDIRECT FIELD COSTS

aace,-----------------------------------------------
lnternatlona
100
90
80
IX
70
0
iXl
60
<
..J
..__
1---
r--
--
r--
0
50
..J

ti:
40
t;

30
IX
0
r-
r----
-
t--
1---
r---
t--
"" --
0
!-
20
z

""'
'
10
100 200 300 400 500
1--t-
Clln'e A
TOial Construction Equipment
-
r--
r--
plus TOial Construction Support
1--
t-1-t-
Plus lndirttt Field Labor
c.-.lldioll F.qai...- I
t---
plus <:.-.lldioll Sooppol1
r--
l(im:hMktJ in CUTW A)
----
I'- .J.J.L..J j
r----
--r-
l.aborCom.,._,.a
1'--
r--R=mr
800 1000 2000 3000 4000 5000 1000 10000 20000
DIRECT FIELD LABOR ($000)
at $20/Workhour
30000 40000

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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
20 25 or more

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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 straight-
line depreciation at the time that maximizes the deduction.

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

Estimated
ADR Class Economic
Process Life, Years Life, Years

Petroleum refining 16 24

Manufacture of textile mill products:
Knitwear and knit products 9 14
Textile mill products (except knitwear) 14 21
Finishing and dyeing 12 18

Manufacture of paper products:
Pulps 16 24
Paper 12 18

Manufacture of chemicals and allied products 11 17

Manufacture of rubber and plastics:
Rubber products 14 21
Finished plastics 11 17

Manufacture of leather 11 17

Manufacture of stone, clay, glass and concrete:
Glass products 14 21
Cement 20 30
Stone and clay products 15 23

Manufacture of primary metals:
Ferrous metals 18 27
Nonferrous metals 14 21

Manufacture of fabricated metal products 12 18

Manufacture of machinery:
Metalworking machinery 12 18
Electrical equipment 12 18
Other machines 12 18

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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:

(Equation 1)
where CIn
i
= 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:
(Equation 2)
where ICIn
i
= 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

) (
) 1 ( *
p
CIn i
g i
CIn
CT
CIn
CIn

+
) (
) 1 ( * ) (
p
ICIn i
g i
ICIn ICIn ICIn

+

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Total interim capital investment in year i (ICIT
i
) is equal to the summation of all individual interim capital
investments in year i.

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:

(Equation 3)
where O&Mn
i
= 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:
(Equation 4)
where Rn
i
= 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:
(Equation 5)

) & (
) & 1 ( * & &
p
Mn O i
g i
Mn O Mn O Mn O

+
) (
) 1 ( *
p
Rn i
g i
Rn Rn Rn

+
i i
DPF Dn Dn *

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where Dn
i
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

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:

(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:
(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:
(Equation 8)

where RT
i
, SCIT
i
, O&MT
i
, DT
i
, and PT
i
were defined previously.
) 1 (
) 1 ( * * ) (
p
CIn L
g
CIn svf CIn SCIn
+
+
ptf CIT PT
i

i i i i i i
PT DT MT O SCIT RT TI + &

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Income Taxes

The income tax payment in year i (IT
i
) is calculated as:

(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:
(Equation 10)

where TI
i
, DT
i
, IT
i
, CIT
i
, and ICIT
i

Present Value (PV) Calculations

PV OF CAPITAL INVESTMENT
The present value of a capital investment occurring in year i is calculated as:
(Equation 11)

where CIN
pvi
is the present value of CIn
i
, CIN
k
is the discount rate for capital investment n, and CIn
i
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:
(Equation 12)

where ICIn
pvi
is the present value of ICIn
i
, ICIn
k
is the discount rate for interim capital investment n, and
ICIn
i
itf TI IT
i i

i i i i i i
ICIT CIT IT DT TI ATCF +
i
k
i
pvi
CIn
CIn
CIN
) 1 ( +
i
k
i
pvi
ICIn
ICIn
ICIn
) 1 ( +

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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
.

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:

(Equation 13)

where O&Mn
pvi
is the present value of O&Mn
i
, O&Mn
k
is the discount rate for O&M category n, and
O&Mn
i

The total present value for O&Mn (O&Mn
pv
) is equal to the summation over all i of O&Mn
pv
i. 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:
(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:
(Equation 15)

where Rn
pvi
is the present value of Rn
i
, Rn
k
is the discount rate for revenue category n, and Rn
i
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
i
k
i
pvi
Mn O
Mn O
Mn O
) & 1 (
&
&
+
itf Mn O Mn O
pv pvt
& &
i
k
i
pvi
Rn
Rn
Rn
) 1 ( +

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The present value of the income taxes generated by Rn (Rn
pvt
) is calculated as:

(Equation 16)

where Rn
pv
was defined above, and itf was defined in Equation 9.

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:

(Equation 17)

where Dn
pvi
is the present value of Dn
i
, Dn
k
is the discount rate for depreciation, and Dn
i
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:

(Equation 18)

where Dn
pv

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:

(Equation 19)

itf R Rn
npv pvt
+
( )
i
k
i
pvi
Dn
Dn
Dn
+
1
itf Dn Dn
pv pvt

( )
i
k
i
pvi
SCIT
SCIT
SCIT
+
1

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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.

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

(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:

(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:

(Equation 22)
where PT
pv

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:

itf SCIT SCIT
pv pvt
+
( )
i
k
i
pvi
PT
PT
PT
+
1
itf PT PT
pv pvt

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(Equation 23)
where OMT
pvt
, RT
pvt
, DT
pvt
, SCIT
pvt
, and PT
pvt

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

(Equation 24)
where RT
pv
, SCIT
pv
, O&MT
pv
, PT
pv
, IT
pv
, CIT
pv
, and ICIT
pv

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:

(Equation 25)
where ATCF
pv
and CIT
pv

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

pvt pvt pvt pvt pvt pv
PT SCIT DT RT MT O IT + + + + &
( ) ( ) ( )
pv pv pv pv pv pv pv pv
ICIT CIT IT PT MT O SCIT RT ATCF + + + + &
pv
pv
CIT
ATCF
Ratio ity Profitabil

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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:

(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:

(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:

(Equation 28)

( ) ( ) [ ]
( ) PR itf
CRF itf DT itf PT MT O ICIT CIT
NAPC
pv pv pv pv pv

+ + +
1
1 &
L
k
k
CRF

+
) 1 ( 1
( )
( )
( )
( )
]
]
]
]
,
,
,
(
(
,
\
,
,
(
j
+
+
+

L
k
g
g
g k
CRF
NAPC
RAPC
1
1
1 1

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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.

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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.

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

APC annualized production cost ($/unit of annual output)
ATCF after tax cash flow ($)
CIn initial capital investment for one of the cost categories, measured as "overnight"
costs, i.e., costs excluding interest and escalation during construction ($)
CIT total initial capital investment, the sum of all CIn($)
CRF capital recovery factor
CT construction time (years)
Dn total investment for an initial capital investment or an interim capital investment ($)
DPF depreciation factor
DT total depreciation ($)
ICIn an interim capital investment ($)
ICIT total interim capital investment ($)
IT income tax payment ($)
L plant operating life (years)
NAPC nominal annualized production cost ($/unit of annual output)
NPV net present value ($)
O&MT total operation and maintenance expenses ($)
O&Mn an annual operation and maintenance expense ($)
PR annual production rate (units/year)
PT property tax payment ($)
RAPC real annualized production cost ($/unit of annual output)
Rn one of five revenue streams ($)
RT total revenue ($)
SCIn salvage value for CIn ($)
SCIT total salvage value ($)
TI taxable income ($)
g general inflation rate (%)
i the year i or the i th year
itf income tax rate (%)
k overall discount rate
ptf property tax rate (%)
svf salvage value fraction (%)

Subscripts
dedi deductible as an expense in year i
g escalation rate for a cash flow stream
i a cash flow stream occurring in year i
k discount rate for a cash flow stream
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

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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 premises (Table D-3)

Capital Costs

____ Major equipment cost references
____ Equipment and utility summary (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 reported in Table
D-3
____ Direct field labor average, $/work-hour
____ Fringe benefits as a % of labor costs if different 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 Home 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 than 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)

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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 different 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%, respectively

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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

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APPENDIX D Report Content: TABLE D-3
(*)
-- TABLE OF DEVIATION FROM PRACTICE
(*) See text for discussion of individual factors recommended

Recommended Deviation
Design Premises
Plant location U.S. Gulf Coast (Houston)
Sparing

90% availability (excl. planned
maintenance)

Capital Costs
Material and labor factors See Tables B-3 and B-4
Fringe benefits 35% of total labor
Small tools factor 3-5% direct field labor
General facilities factor 15% of total process capital (TPC)
Home office overhead and fee
(contractor + client)
15% of TPC
Prepaid royalties 0.5% of TPC
Working capital basis 2 months annual operating cost
Spare parts inventory 0.5% of TPC
Storage time
Fuel 90 days
Chemicals 90 days
Raw materials 90 days
Operating Costs
Supervisory labor 15% of direct labor
Maintenance labor 3% of total plant cost
Maintenance material 3% of total plant cost
Indirect labor 75% of total direct labor
Indirect material 25% of total direct labor
Payroll overhead Same as for capital costs
Property taxes and insurance 2% of total plant cost
Corporate overhead 60% of total labor
Selling expense 10% of sales
Financial Analysis
Cash flow timing
Total cap. requirement Divided equally over the years of
construction

Revenue, oper. costs, and taxes One year after capital expended
Depreciation Starts in last year of capital expenditure
ADR class life See Table C-3
Federal tax rate 34%
Combined federal and state tax rate 39.1%
Salvage Not considered
Debt interest Not included if weighted cost of capital
used in NPV calculation

Weighted cost of capital (after tax) 9.3% (see text)
Debt fraction of corporation 32%
Equity fraction 68%
Escalation factors
[Assume an Annual Growth Rate (specify*)]

Capital AGR
Labor for oper. costs AGR + 1%
Fuel and power AGR + 1%
All other oper. exp. AGR

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

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APPENDIX D Report Content: TABLE D-4 -- SUMMARY OF REPORT DESCRIPTIVE MATERIAL

1. Summary and Conclusions
(1)

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. Process/Plant Description
(2)

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

2.3 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)
2.4 Plant Site Description
2.5 Other Descriptions)

3. Assumptions
(3)

3.1 Technical
3.2 Cost

4. Capital Investment
(4)

5. Sensitivity Studies
(5)

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6. Tables and Flowsheets
(6)

6.1 Plant Capital Cost Summary (Table B-1)
6.2 Capital Costs by Section (Table B-7)
6.3 Equipment, Utility and Chemical Summary (Table B-2)
6.4 Annual Operating Cost Summary (Table B-8)
6.5 Financial Analysis Summary Tables
6.6 Detailed Equipment List
6.7 Flow Sheets
6.8 Sensitivity Study Tables and Figures
6.9 Table of Recommended Practice Deviations (Table D-3)

(1) The summary and conclusions should be as concise as possible and appear in the front of the report.
A brief description of the plant size, requirements and goals should be followed by a cost summary
table containing the information shown. Following this table a general description of conclusions
reached as a result of the sensitivity study may be given. Finally, concluding remarks concerning the
viability or feasibility of proceeding further in the development of the process should be made.
(2) Process/plant description (also see Sections 8.2, 8.3, 12.1, 12.2, 12.3) This section provides a
description of the objectives and goals of the study and a description of the functions and major
components of the major plant systems. Major design considerations should be included here along
with special discussions of specific plant sections or equipment items as necessary.
(3) Assumptions (also, see Sections 9, 12.1) This section should be used to summarize major process
assumptions, especially those made in areas of emerging or non-standard technologies. This section
should also be used to summarize cost engineering assumptions (i.e. equipment cost build-up
procedures, equipment costing techniques, etc.) especially in those areas where deviations from the
Practice have been made.
(4) This section should be used to discuss any problems or weaknesses encountered in the costing
process to arrive at an estimate of total plant investment cost.
(5) Sensitivity Study (also see Section 12.7) This section should be used to describe the method and
results of the sensitivity study. Each parameter analyzed should be discussed and comparisons
made wherever possible to the base line study.
(6) Tables and Flowsheets. Selected process flow sheets, related drawings, special figures and tables
should appear all together in this section of the report and not next to the page where the flow sheet
or table may actually be first discussed. Although this requirement may violate a general rule of
technical writing, it is in keeping with a more important purpose of this practice to present information
in a manner so that comparisons can be made in the most expeditious manner between reports.

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