Cape Peninsula University of

Technology
Faculty of Engineering
Department of Chemical Engineering
Cape Town Campus

CHASSUNGO, C.K.
208146202

CHEMICAL ENGINEERING PROCESS DESIGN (PQD400S)

INTEGRATD DESIGN PROJECT – SECTION 4
ENGINEERING COSTING & PROCESS ECONOMIC

“I   certify   that   this   report   is   my   own   unaided   work,   except   for   the   assistance
received from the teaching staff. I undertake not to pass report onto any other
student.”
Signature………………………………..Date……………….

Due date: 25 OCTOBER 2011 MR. A. RABIU
Tables of contents

Tables of contents......................................................................................................ii
List of figures.............................................................................................................iii
List of Figures............................................................................................................iv
1 INTRODUCTION...............................................................................................1
2 ENGINEERING COSTING.............................................................................2
3 CONCLUSION..................................................................................................11
4 REFERENCE....................................................................................................12
APPENDIX A – CALCULATIONS......................................................................13
List of figures
Figure 1: Break­even point......................................................................................9
Figure 2: Discounted cash flow for 10 years production...................................9
Figure 3: Discounted cash flow rate of return...................................................10
List of Figur
Table 1: Equipment cost for DME production.....................................................4
Table 2: Summary of production costs..................................................................5
Table 3: Income from production............................................................................6
Table 4: Plant economic analysis............................................................................6
Table 5: Plant profit in 10 years.............................................................................8
Table 6: Discounted cash flow rate of return.....................................................10
Y
Table A 1: Factor for estimation of project fixed capital cost.........................13
1 INTRODUCTION

As   soon   as   the  final   process­design   stage   is   completed,   it   becomes   possible   to

make   accurate  cost   estimations   because   detailed   equipment   specifications   and
definite plant­facility information are available. The chemical engineer (or cost
engineer)  must  be certain  to  consider  all  possible factors  when  making a cost
analysis.   Fixed   costs,   direct   production   costs   for   raw   materials,   labour,
maintenance, power, and utilities must all be included along with costs for plant
and   administrative   overhead,   distribution   of   the   final   products,   and   other

miscellaneous items (Peter et al., 1991)

The aim is to obtain an optimum economic design by determining the optimum

operation design. According to Peter  et al.  (1991)  in cases of this type, the best

design   is  designated   as  the  optimum   operation   design.  The   chemical   engineer

should remember, however, that economic considerations ultimately determine
most   quantitative   decisions.   Thus,   the   optimum   operation   design   is   usually
merely a tool or step in the development of an optimum economic design.

The process must be designed to maximize its profitability, quantified in terms of 
the following indices among others:

(a) The Break­Even output.
(b) Return on Investment (ROI), (c) Approximate Payback Period (PBP)

To obtain the above, the costing procedure will include among others, cost of 
investment including capital and operating costs, expected revenue from the 
product(s).
2 ENGINEERING COSTING
The plant cost was obtained by determining the price of major components using
equation 1 (Sinnott, 2009).

C e=a+ bSn  
(1)
Where;
Ce = purchased equipment cost 
a, b = cost constants
S = size parameter
n = exponent for type of equipment

The costs of equipment’s are found on Table 1.

The   depreciation   method   used   it   the   straight   line   method,   according   to

Mogalakwena   Policy   (2011),   which   is   the   depreciation   method   prescribed   by
SARS   unless  otherwise  agreement   in  writing   is   made   between  SARS  and   the
Chief Financial Officer of the company.

City of Cape Town will hold a bank account for the project at Investec Bank. The
interest rate offered by the bank is 9% p.a. 

The tax rate is 40% as determined by SARS, because the plant income is more
that   R500,000.   The   dollar   to   rate   exchange   used   is   $1   =   R7.88,   from
Johannesburg Stock Exchange at 24th of October 2011 at 1pm.

The evaluation of profitability of the project was determined using the following
equations;
m
i
( )
i eff = 1+ nom −1
m
(2)
Where:
ieff = effective interest rate
inom = nominal interest rate
m = interest period
 Total capital Investment (TCI )=¿ Capital( Cfc)+Working capital   (3)

Straight­line method;
C fk −S
d=
n
(4)

Where  d  is depreciation amount per year,  Cfk  is the fixed capital investment in

year k, S is the salvage value, and n is life (number of years) of the equipment.

Pgross =R−C op (5)

Where Pgross is the gross profit,  R  is the revenue from sales, and  Cop  is the

operational costs.

T =( R−C op−d )t (6)

Where T is the tax cost/charge, t is the income tax rate.

Net profit is determined by;

Pnet =P gross−T  (7)

Cash flow and discounted cash flow are determined by following equations;

CFk =Pnet −C fk (8)

And;
CF k
DCF k =
( 1+r ' )k (9)

The   Net   Present   Value   (NPV)   of   a   project   is   the   cumulative   discounted   cash
position at the end of the project.
 n
CF k
NPV =∑
k=1 ( 1+r ' )k
(10)
Return on investment;

P gross (1−t )
ROI=100
TCI (11)
And payback period expression is;
100
PBP=
ROI
(12)
 Table 1: Equipment cost for DME production 
Parameter
Equipment Type Aspen Designation S lower S upper Size parameter units a b n  Ce 
Air Compressor Reciprocating Isentropic COMPRES1 93 16800 16627.9091 kW 220000 2300 0.75  $      3,587,875.80 
MSW Furnace Cylindrical FURNACE 0.2 60 590.582342 MW 68500 93000 0.8  $    15,397,270.24 
Air Separation Unit Sieve tray AIRSPRTR 0.5 5 3.0315 m 110 380 1.8  $              2,907.48 
2
Heat exchanger Air cooler HEATX1 1 1000 108 m 24000 46 1.2  $            36,672.62 
Mixer Static mixer MIXER 1 1 50 76.5583352 L/s 500 1030 0.4  $              6,340.29 
Splitter Static splitter SPLITER1 1 50 76.5583352 L/s 500 1030 0.4  $              6,340.29 
REACTOR 1, 2, 3, 4, 5, 6 
Gasifier Pyrolysys/gasification & 7 0.5 25 11.30973355 m3 11000 76000 0.4  $      1,480,759.09 
Mixer  Static mixer MIXER 2 1 50 76.5583352 L/s 500 1030 0.4  $              6,340.29 
Syngas Cleaning vessel Pressure vessel vertical Cleaning 160 25000 11309.73355 kg 10000 29 0.85  $            90,878.39 
2
Cooler U­tube shell and tube COOLER1 10 1000 4.908738521 m 24000 46 1.2  $            24,310.40 
Syngas Compressor Reciprocating Isentropic COMPRES2 93 16800 4582.7171 kW 220000 2300 0.75  $      1,501,061.92 
Splitter Static splitter SPLITER2 1 50 1.346621944 L/s 500 1030 0.4  $              1,660.21 
DMEGASF1, 2, 3, 4, 5, 6,
DME Reactor Jacketed reactor 7 & 8 0.5 100 56.55 m3 53000 28000 0.8  $      6,075,895.27 
Mixer  Static mixer MIXER 3 1 50 48.707834 L/s 500 1030 0.4  $              5,373.90 
DME Compressor Reciprocating Isentropic COMPRES3 93 16800 35049.927 kW 220000 2300 0.75  $      6,111,734.59 
Pressure vessel vertical 
DME Separator 1 304 ss SEPRTOR1 160 25000 3769.911184 kg 15000 68 0.85  $            89,540.17 
Pressure vessel vertical 
DME Separator 2 304 ss FLASH 160 25000 4523.89 kg 15000 68 0.85  $          102,035.04 
2
Cooler U­tube shell and tube COOLER4 10 1000 5 m 24000 46 1.2  $            24,317.34 
Pressure vessel vertical 
DME Separator 3 304 ss DMEOHSPR 160 25000 13194.69 kg 15000 68 0.85  $          231,196.28 
Ce  $    34,782,509.60 
C  $ 109,564,905.25 
Cfc  $ 207,077,670.93 
The   operating/production   costs   can   be   estimated   once   the   total   fixed   capital
investment has been estimated, as shown in standard Table from Sinnott, 1999.

Table 2: Summary of production costs
Variable Costs
1 Raw materials  $                           ­   
2 Miscellaneous material  $      1,553,082.53 
3 Utilities  $ 178,543,994.33 
4 Shipping and Packaging  $                           ­   
Sub Total A  $ 178,543,994.33 
Fixed Capital  $ 207,077,670.93 

Fixed Costs
5 Maintenance  $    15,530,825.32 
6 Operating Labour  $          240,000.00 
7 Lab Costs  $            50,400.00 
8 Supervision  $            48,000.00 
9 Plant Overheads  $          120,000.00 
1
0 Capital charges  $    31,061,650.64 
1
1 Insurance  $      2,070,776.71 
1
2 Local Taxes  $      4,141,553.42 
1
3 Royalties  $      2,070,776.71 
Sub Total B  $    55,333,982.80 
Direct Production Costs (A+B)  $ 233,877,977.13 
1
4 Sales Expense  $    58,469,494.28 
1
5 General Overheads  $                           ­   
1
6 Research and Development  $                           ­   
Sub Total C  $    58,469,494.28 
Annual Production Cost 
($/yr)  $ 292,347,471.41 
 R 2,303,698,075.00

Production Cost ($/kg)  $                       1.03 
Annual Production rate(kg/yr) 282,510,699.00
 Table below shows the production rate of DME and methanol as well as the 
income/revenue from these products.
Table 3: Income from production

Aspen product  Production rate Selling price  Selling price 

stream (kmol/hr) (tons/yr) ($/ton) (R/ton) Revenue
DME 494.88614 282510.699 799.91a 6303.29  $  225,983,133.26 
MEO 903.719695 358885.1653 390b 3073.2
H  $  139,965,214.46 
Total $   365,948,347.72 
Total R 2,883,672,980.00
Shanxi Lanhua Group, 2011
a 

Independent Chemical Information Services, 2011
b 

Plant economic analysis was determined and the values are given in table 4 (See
Table 5 and Figure 1). The return on investment is 18.07% of the initial total
capital investment, this make the project promising, although the ideal return on
investment   is   25%.   The   plant   operates   in   10   years   and   on   the   first   year   the
payback period starts which means the total capital investment is recuperated
and only the annual expenses need to take consideration from there on.

Table 4: Plant economic analysis

Dollar US Rand ZA
Working capital 37,273,980.77  293,718,968.5
Total Capital investment  244,351,651.69  1,925,491,015.00
Interest rate % 9
Effective interest rate % 9.38
Tax % 4.0
Return on Investment % 18.0725
Return on Investment  44,160,452.24 347,984,363.7
Payback period (yrs) 5.5
The  total  capital  investment  was   split  in  3  fraction;   40%   was   invested  at   the
beginning   of   the   project,   another   40%   was   invested   in   year   one   (1)   and   the
remaining 10% was invested at the end of year one (1).
Table 5: Plant profit in 10 years

Cumulative 
Yea Investmen Manufacturing Revenue  Gross  Depreciation Net Profit  Discount CF  Cash Flows 
r t ($) costs ($) ($) Profit ($) Tax ($) ($) Cash Flow ($) ($) ($)
0 82831068.37     0 0 0 0 ­82831068.37 ­82831068.37 ­82831068.37
1 82831068.37     0 0 0 0 ­82831068.37 ­75727323.12 ­158558391.5
73600876.3 47473768.5
2 41415534.19 292347471.4 365948347.7 1 20707767.09 26127107.79 2 6058234.334 5063662.509 ­153494729
73600876.3 47142444.2
3   292347471.4 365948347.7 1 20707767.09 26458432.06 5 47142444.25 36023849.77 ­117470879.2
73600876.3
4   292347471.4 365948347.7 1 20707767.09 26756623.91 46844252.4 46844252.4 32726056.91 ­84744822.3
73600876.3 46575879.7
5   292347471.4 365948347.7 1 20707767.09 27024996.57 4 46575879.74 29748000.35 ­54996821.95
73600876.3 46334344.3
6   292347471.4 365948347.7 1 20707767.09 27266531.96 4 46334344.34 27055718.73 ­27941103.22
73600876.3 46116962.4
7   292347471.4 365948347.7 1 20707767.09 27483913.82 9 46116962.49 24619322.1 ­3321781.127
73600876.3 45921318.8
8   292347471.4 365948347.7 1 20707767.09 27679557.49 2 45921318.82 22412437.42 19090656.3
73600876.3 45745239.5
9   292347471.4 365948347.7 1 20707767.09 27855636.79 1 45745239.51 20411738.04 39502394.34
73600876.3 45586768.1
10   292347471.4 365948347.7 1 20707767.09 28014108.17 4 45586768.14 18596543.34 58098937.67
NPV 58098937.67
 Break even point
2E+08

1E+08
Cummulaivet cash flow

5E+07

0E+00
0 2 4 6 8 10 12
­5E+07

­1E+08

­2E+08

­2E+08

Year

Figure 1: Break­even point

Results show that the maximum cash flow obtained throughout the project occurs in
year 4 and from there the cash flow decrease which means the expenses are higher than
the income.

Discounted Cash Flow

$50,000,000.0

$30,000,000.0
Discounted Cash flow

$10,000,000.0

­$10,000,000.0 1 2 3 4 5 6 7 8 9 10 11
Discounted Cash Flow
­$30,000,000.0

­$50,000,000.0

­$70,000,000.0

­$90,000,000.0

Year

Figure 2: Discounted cash flow for 10 years production
Table 6: Discounted cash flow rate of return
Discounted Cash Flow
Year rate of return Cumulative Cash Flows
0 $ ­124,246,602.56 $   ­124,246,602.56
1 $    ­48,681,226.82 $   ­172,927,829.38
2 $     19,487,867.73 $   ­153,439,961.65
3 $     38,704,097.90 $   ­114,735,863.75
4 $     30,329,408.29 $     ­84,406,455.46
5 $     23,766,811.71 $     ­60,639,643.75
6 $     18,624,212.30 $     ­42,015,431.45
7 $     14,594,354.85 $     ­27,421,076.60
8 $     11,436,467.22 $     ­15,984,609.38
9 $       8,961,874.91 $       ­7,022,734.47
10 $       7,022,728.29 $                    ­6.18
DCFRR $   ­6.184560808

To obtain a discounted cash flow rate of return of zero (0) the interest rate must be
27.6%. Therefore the initial 9% interest rate is beneficial for the project.

DFCRR
0E+00
0 2 4 6 8 10 12

­5E+07
DFCRR

­1E+08 DFCRR

­2E+08

­2E+08

Year

Figure 3: Discounted cash flow rate of return
3 CONCLUSION
An   economic   analysis   was   done   by   first   determining   the   cost   of   equipment.
Compressors and Solid waste furnace are the most expensive equipments because
of the constant extreme increase and decrease of pressure throughout the process
and the large amount of MSW to be heated. 
 
The project seems to be promising due to high selling prices of Dimethyl ether
and methanol, which result in a payback period of 5 years. At the beginning of
the   project   was   invested   a   total   of   R  1,925,491,015.00.   This   amount   was
recovered   at   the   end   of   year   ten   (10)   and   an   amount   of   R  347,984,363.7  was
determined to be the return in investment.

The prices of DME and methanol tends to increase as new environmental policies
are been implemented, which results in more use of both chemical as fuel, diesel
blending, antiknock agent and production of other chemicals. 
4 REFERENCE

Independent Chemical Information Services, 2011. Methanol prices and pricing 

information. http://www.icis.com/v2/chemicals/9076034/methanol/pricing.html 
[23 October 2011]

Investec   Group   Economics,   2011.  Interest   rate   outlook   for   2011.

http://www.investec.com/en_za/#home/research.html [22 October 2011]

Mogalakwena   Municipality,   2011.  Asset   management   policy.

http://www.mogalakwena.gov.za/docs/policies/Final%20Asset%20Management
%20Policy%20Mogalakwena%20V41.pdf [22 October 2011]

Peter, M. S. et al. (1991). Plant design and economics for chemical engineers. 4th
Edition. McGraw­Hill Book Co, Singapore.

Shanxi Lanhua Group, 2011. DME price trend. en.sxcoal.com/783/0/Datalist.html
[23 October 2011]

Sinnott, R. K. 2005.  Coulson & Richardson’s  Chemical Engineering, Volume 6

Chemical   Engineering   Design,   4th  Edition.   Elsevier,   Butterworth­Heinemann,
Oxford, United Kingdom

Sinnott, R. K. 2009.  Coulson & Richardson’s  Chemical Engineering, Volume 6

Chemical   Engineering   Design,   5th  Edition.   Elsevier,   Butterworth­Heinemann,
Oxford, United Kingdom
APPENDIX A – CALCULATIONS
Table A 1: Factor for estimation of project fixed capital cost (Sinnott, 1999)

Calculations were done in the following way:
First the nominal interest rate was converted to effective interest rate using 
equation (2)
12
0 . 09
(
ieff = 1+
12 ) −1
ieff =0 .0938

Depreciation;
207077670 . 9
d= =20707767. 09
10

Manufacturing cost is the annual production cost $ 292,877,977.13 from Table 2,
Revenue is equal to the profit of DME and methanol from Table 3 which is $ 
365,948,347.72.

Gross profit from equation 5;

Pgross =365 ,948 ,347,72−292,877,977,73=73,600,876 .31

Tax from equation 6;

T =(365 ,948 , 347 ,72−292 ,877 ,977 ,73−20 ,707 ,767 .09) x0 .4=21 ,157 , 243. 69
Net profit from equation 7;

Pnet =73, 600 , 876 .31−21,157 , 243.69=52, 443 ,632 . 62

Cash flow and discounted cash flow for year zero was determined using equation 
8 and 9;

CF k =0−82 , 831 ,068 . 37=−82 , 831 ,068 . 37

−82, 831, 068 . 37
DCF k = =−82 ,831 , 068 .37
( 1+0. 093 ' )0

Return on investment from equation 11;

73 ,600 ,876 . 31(1−0 .4 )

ROI=100 =18.072
244 , 351,651 . 69

Payback period from equation 12;
100
PBP= =5 .53 years
18. 072