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Economic analysis

A. Estimated Total Capital Investment (TCI)


Fixed Capital Investment ( FCI) was estimated by using the study estimate method
( Peters). Equipment cost was calculated in earlier section, and used to estimate FCI by
selected percentage range. Figure 1 showed that equipment cost was 24% of FCI.

Components
purchased equipment
purchased equipment
installation
instrumentation
piping
electrical
buildings
yard improvement
service facilities
land
engineering and supervision
construction expense
legal expense
contractor's fee
contigency
Total

Selected Range
24

Percentage
Range
0.24

Cost
30.29

10
8
7
4
4
2
12
0
8
9
2
2
8
100

0.10
0.08
0.07
0.04
0.04
0.02
0.12
0.00
0.08
0.09
0.02
0.02
0.08
1

12.62
10.10
8.83
5.05
5.05
2.52
15.15
0.00
10.10
11.36
2.52
2.52
10.10
126.21

Figure 1- Estimate of FCI for Direct Process


The working capital (WC) was assumed to be 15% of FCI, which was an
average cost for a chemical plant (Peters). The TCI was sum of FCI and WC, which
was total of $145.15 million.

B. Total Product Cost (TPC)


The next major component of an economic analysis is the total product cost
(TPC), which including the two major costs: manufacturing costs and general
expenses. The table below was the estimation of the TPC by calculating each
component in the TPC. Each component cost was calculated by using the FCI, raw

materials, utilities cost, and the operating labor costs. The table below showed every
component cost in the TPC. The percentage range was chosen according to Plant

Design book (Peters).

Figure 2 Estimate TPC for married process


C. Cumulative Cash Position (CCP)
MACRS of 6 year was used for depreciation calculation because it depreciated the
equipment more rapidly and helped to reduce the amount of tax paid in first five years
and also generated more cash flow, which was used to repaid the capital costs. Two
processes, married and direct were developed through an Aspen Simulation. Based on

economic calculation, after ten years, the married process was able to generate a total
profit of $75 million, while the direct process lost around $65.58 million; therefore, the
married process was preferred due to the economic profitability. For the purpose of
increasing the projects profit, a project life was extended out to ten years. Figure 4 was
the cash cumulative position graph, which indicated the capital cost was totally repaid in
between year 7th and 8th, and had a total of profit of $75 million.

Figure 3 Direct Process

Figure 4 Married Process

Cumulative Cash Position


100.00
50.00
0.00
-3 -2
-1 0
-50.00

9 10 11

-100.00

Cumulative Cash
Position

-150.00
-200.00
-250.00
-300.00
-350.00

Figure 5 Cash Cumulative Position


Where :
T = V + W + Ax
T Total capital investment (TCI)
V Manufacturing Fixed capital investment ( FCI)
Ax Nonmanufacturing FCI
W Working Capital Investment

Income Tax = (sj coj dj)


sj total income or sale
coj costs for operation
dj depreciation charge
tax rate
Gross Profit = sj coj (before depreciation charge)
Net profit after tax = (sj coj dj) * (1-)
Net cash flow including depreciation charge = (s j coj dj) * (1-) + dj