ECONOMIC ANALYSIS

This chapter is on analyzing the economic feasibility of the project. The

key factor of designing a chemical plant is to maximize profits of the
company. Therefore it is vital to make sure that there will be profits
generated and that the project wont be running at a loss. Reaching the
break even in a short period is critical as it is less risky for investors to
invest and to gain a good profit. Identifying the capital cost, the total
revenue and total cost of the project throughout a time period will lead us
in concluding whether this project is viable or not.
There are numerous cost categories which need to be considered. First
comes the capital cost. It is estimated a construction period of 2 years for
this plant. Then estimates for setting up costs and all the operating costs
are identified. The pricing for equipment, raw material and the final
product are in USD $. These figures were converted into LKR by using an
exchange rate of 134.04.
Since there are many aspects to be considered the investment decision
cannot be made based on one economic indicator. Various aspects need
to be considered before making the final decision. The economic
indicators used to evaluate this project are the Simple Payback Time,
Return on Investment (ROR), Net Present Value (NPV), and the Internal
Rate of Return (IRR). These different tools have their own advantages and
drawbacks. Therefore every calculation needs to be analyzed accordingly
before deciding to take up the investment decision or not.
Capital investment
The capital investment is the initial cost which is incurred to start up the plant. This is a one
off cost which needs to be recovered from the profits earned during the production process.
This will be distributed among the 2 years of construction of the project. The capital
investment comprises of fixed costs and working capital components

1. Fixed costs
The fixed capital costs can be divided into direct costs and indirect costs.
Type of direct costs

Value

Land (70,000/perch * 220perches)

15,400,000

Site Preparation (1.5% of land)

231,000

Buildings and structures

25,000,000

Equipment cost

26,875,020

Piping & fittings

4600000

Installation and wiring (10% of equipment cost)

Total Direct Capital Costs (DCC)

Indirect Costs

Design & Engineering (20% of DCC)

16997117

Contractors fees (5% of DCC)

4249279

Contingency Allowance (1% of DCC)

849856

Total Indirect Capital Costs

Total Fixed Capital Cost

Equipment

Unit cost $

No. of units

Cost $

Feed drum

20000

20000

Vapourizer

5000

5000

Fired heater

6000

6000

16000

16000

Furnace

6000

6000

Scrubber

10000

10000

Cooler

6000

6000

Condenser

7500

7500

Flash Distillation
Column
25000

25000

Distillation
column

130000

Tubular
Reactor

Flow

65000

Other Equipment

9000

Total
Equipment
Cost

200500

Total Equipment Cost in LKR ($/LKR = 134.04) = 295,000*134.04 = LKR 39,332,350

1. Working capital

Working capital is the additional investment needed, over and above the fixed capital, to start
the plant up and operate it to the point when income is earned. It includes the following
components;
1. Start-up.
2. Initial catalyst charges.
3. Raw materials and intermediates in the process.
4. Finished product inventories.
5. Funds to cover outstanding accounts from customers.
Most of the working capital is recovered at the end of the project. The total investment
needed for a project is the sum of the fixed and working capital. The working capital
requirement for a chemical plant is generally 12% of the fixed capital cost.

Fixed Capital Cost (FCC)

Working Capital Cost (12% of FCC)
Total Capital Cost
*The construction period of the plant is estimated to be 2 years. The total capital cost will be
distributed among these 2 years of construction.
Year

Capital Cost

Land and Site preparation

Buildings and Structures, Design and Engineering, Contractors

Fees

Equipments, Piping and Fittings, Installation and wiring,

Contingency Allowance, Working Capital