AACEI RecommendedPractice No.16R-90

8/13/2019 AACEI RecommendedPractice No.16R-90

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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 hoccommittee. The document has been reviewed by all concerned technical committees in AACE and wasformally accepted by the AACE Board of Directors as a recommended practice in September 1990.


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AACE International Recommended Practice No. 16R-90CONDUCTING TECHNICAL AND ECONOMIC EVALUATIONS AS APPLIED FOR THE PROCESS AND UTILITYINDUSTRIESTCM 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 developingstandards and recommended practices. The Recommended Practice described herein is for executingtechno-economic evaluations of process oriented engineering projects. Most, if not all, cost engineersare involved in process-oriented techno-economic studies in the course of their work. Some concentratein estimating only plant investment; others are involved in specific areas of cost estimating or only infinancial analysis; still others, in overall economics. Adherence to a consistent set of process evaluationguidelines would improve the quality of these studies and would lower the cost to prepare them (improveproductivity).

There are several ways of conducting technical and economic evaluations in the process industries andwithin 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-makingorganizations have stated that standards should, at the minimum, meet the dual criteria of verifiability andcomparability.

*The Practice was developed by an AACE ad hoc committee set up for this purpose. Members of this adhoc 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 thiseffort.

Electric Power Research Institute (EPRI)

American National Standards Institute (ANSI), who provided information necessary to achieveconsensus and who established that there was a genuine technical community interest in thePractice.

The Recommended Practice described herein was developed to meet these criteria in the followingmanner:

Verifiability - The technical and economic evaluation should be conducted and reported such that allaspects of the study may be independently verified with reasonable effort.


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Comparability - The evaluation should be conducted and reported in ways that assure that changesin assumptions are readily and consistently evaluated. Also maximized is the ease of comparingany or all aspects of the subject study with any other study conducted under the aegis of therecommended practice.

In addition to the goals of verifiability and comparability, the Practice should facilitate evaluations that areaccurate and correct. Thus another criteria for this Practice is:

Accuracy - The evaluation should be conducted in a manner that yields technically andeconomically correct results within the levels of uncertainty corresponding to the level of detailrequired.

This recommended practice is not intended to replace existing procedures but rather to provide guidelinessuch that the above criteria may be met. Different industries (and different companies within theseindustries) conduct technical and economic studies in different ways. This recommended practice islargely oriented to the chemical process industries although most of the methods outlined may beadapted 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 fromcontractors such that all are on the same basis and may be readily compared. Others could find thepractice useful to conduct their own preliminary evaluations in a consistent manner. Still others could findthe practice useful within their own company and for publishing or other external purposes (such as forsales 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 ofthis Practice.

3. SCOPE

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

3.2 Mass and energy balances, composition and properties of all streams, equipmentspecifications, and performance criteria are all developed and reported according to arecommended format.

3.3 Direct costs of plant sections are developed and reported according to recommendedprocedures and formats.

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

3.5 Field indirects, engineering, overhead and administrative costs are determined by factorsherein recommended.


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3.6 Operating costs are developed based on estimates of raw material, utility and operatinglabor requirements. Other elements of operating costs such as maintenance and overheadare 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 variablesand assumptions.

3.9 A recommended reporting format is provided to be sure that all information required forverifiability and comparability is included. Also included are listings of deviations from thisestablished practice.

4. APPLICABLE DOCUMENTS AND REFERENCES

4.1 AACE, Cost Engineers' Notebook.

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

4.3 Brown, D. R. et al, An Assessment Methodology for Thermal Energy StorageEvaluation , Prepared for U.S. Department of Energy by Battelle Memorial Institute, PacificNorthwest 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 BookCompany 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 ChemicalEngineers , 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 aredefined 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 lifeestablished 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 andservices. "Escalation" usually refers to specific items.

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

5.1.6 Levelized (Annualized) Production Cost. A unit cost equal to the annualized cost ofproduction divided by the annual production rate. The annualized cost, recurring everyyear for the life of a project, has a present value equivalent to the present value of allproject costs. When the discount rate used is the after-tax weighted cost of capital, thelevelized production cost is similar to the revenue requirements used by the utilitycompanies, 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 equalconstant dollars.

5.1.9 Overnight Cost. A measurement of capital investment that excludes any interest expenseor escalation of costs that may occur during the construction period, as if the project hadliterally been built overnight.

5.1.10 Payoff Period, Discounted. The length of time required for the cumulative present value ofafter-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 theinitial capital investment.

5.1.13 Real (Constant) Dollars. Dollars of uniform purchasing power exclusive of general inflationor 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 yetconsistent procedure for taking into account all the technical information needed to developa budget-type estimate as well as all the relevant costs necessary to evaluate the economicperformance of a process being evaluated.

7.2 The method is intended to compare readily and in a consistent manner the economics ofcompeting processes as well as the economic viability of individual processes. Theconsistency of the method, providing verifiability and comparability, makes it particularlyuseful 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, forincremental studies, to design and cost individual components of projects or for optimizingpurposes. In short, the method has applications wherever conceptual, preliminary orbudget-type techno-economic studies are required. The method is not intended fordefinitive-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 toprovide guidelines such that the criteria of verifiability and comparability in the transmissionof 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 wasdone 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. Thefirst 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 limitthe resultant analysis.

8.2 Develop the Design. A process plant size is first established based on marketconsiderations. Flow sheets showing the major equipment required with detailed materialand energy balances around each equipment item are developed. Standard engineeringpractice as outlined in such texts as Peters & Timmerhaus (ref. 4.7) are followed using acommon set of recommended design premises.


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

8.4 Establish Total Capital Requirement. Plant costs are built up by first establishing the costof each equipment item delivered to the plant site. Material and labor costs to set andinstall equipment are next estimated using recommended factors. Total plant costs areestablished by adding field indirects, engineering costs, overhead and administration basedon recommended factors. Finally, total capital requirement is established by adding in suchcosts as pre-production or start-up costs, inventory capital, initial chemicals and catalystcharges and land.

8.5 Estimate Plant Operating Cost. Operating labor, utility and chemical requirements are firstestimated from the design data and from these total operating costs are established bymeans of recommended factors.

8.6 Conduct Financial Analysis. Detailed cash flows (year-by-year) are first established basedon recommended procedures. One or more of a set of measures-of-merit techniques areselected 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 theeffects 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 ofrecommended tables. Discussions of the results are included in the report. All deviationsfrom the recommended practice are documented and reasons for the changes from thoserecommended 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 toperforming budget-type estimates such that communication of results to others is readily achieved withclear and unequivocal understanding of what was and what was not included in the study. The criteria ofverifiability and comparability are the goals to be met.

The method is primarily aimed at generating budget-type estimates as defined by AACE having accuracylimits of +30% to -15%. The method is also adaptable to order-of-magnitude estimates. The method isaimed at the process industries and those doing business with them, but here again, other industries mayfind it useful.

The method does not detail rigid engineering design techniques. These are more than adequatelycovered in plant design texts and other sources. Major equipment components are only specifiedsufficiently to conduct budget-type estimates. Certain factors (or ranges of factors) in the costingprocedure 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 arespecified.

Finally, individual sections of the practice, such as the operating cost routine or the financial analysisprocedure, 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 developedenough so that sufficient detail is available to conduct the study for a budget-type estimate that will resultin an accuracy range of +30% to -15%. Reliable data for developing mass and energy balances aroundmajor equipment items should be available. A sensitivity study, described below, is to be conducted onthose items for which insufficient data (including costs) are available or for which questionableassumptions are made. The reliability of the data, as well as other factors, may necessitate deviatingfrom the recommended practice. Deviations from the recommended practice must be well documented inthe report.

11. DATA REQUIREMENTS

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

11.1 Plant Design. Material balance, energy balance, stream compositions and quality, flowsheets showing plant configuration.

11.2 Equipment Specifications. Design of individual equipment to the extent necessary forcosting; materials of construction required; number of equipment items necessary; sparingphilosophy used; utility requirements; etc.

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

11.4 Operating Costs. Factors required if not using recommended ones; operating laborrequirements; annual utility and chemical requirements; raw material and byproduct unitcosts and quantity requirements.

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

12. COMPUTATION PROCEDURES

12.1 Identify the Objectives, Alternatives and Assumptions. It is first necessary to establish the specificobjectives for the technical economic study. For example, two or more design changes may beevaluated to determine which has the best economic potential in the overall scheme. Thus, acontractor could optimize the design to produce the desired end result and thus be competitive withother contractors when opening discussions with a client. The client might be evaluating two ormore processes from different contractors to determine which, if any, are worthy of furtherconsideration. If all the studies are done in a consistent manner as outlined in this practice, thencomparisons 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, theintended purpose of the evaluation, the cost and resources available to perform the evaluation, andthe impact, both monetary and non-monetary, contingent on the investment decision. Each ofthese may require different assumptions and different detail within the budget-type estimate.

Assumptions made with respect to engineering design and bare equipment costs should becarefully considered. An error in establishing bare equipment costs can be magnified three to fivetimes by the time the final results are estimated.

Deviations from the recommended practice should be carefully documented and explained. Keepin mind that one of the main objectives of the practice is one of communicating to others exactlywhat is and what is not included in the study so that verification and comparability of results arereadily obtained.

12.2 Develop the Design. This section includes a description of the necessary information to defineproperly the process under consideration. This section also defines the recommended designpremises to be used in the study.

12.2.1 Process Definition -- Budget estimates require a detailed process flow diagram and streamsummaries 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 acceptableengineering practices and using the design premises outlined below. It is not necessary todocument the complete design unit but basic performance design criteria on whichconclusions rest should be documented. In most cases, all that would be necessary are theflow diagrams outlined above, the equipment list (described below) and deviations from thedesign premises (described below).

Before developing the process flow diagrams, a plant size should be established based onmarketing conditions, expected share of market, economies of scale and other factors. Incomparing alternatives, plant size (output) should be kept constant except in those caseswhere 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 becontained within those sections. Even within the same organization, slight variations inpractice can complicate future study-to-study comparisons (e.g., does heat exchangeequipment go in its own section, in the section that produces the waste heat, or in thesection that benefits from the heat exchanger product?). If executed with care, plant sectiondefinition will aid the ease of comparing studies, as for example, the situation when thestudies 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 requirementsof the process flow-sheets and material and energy balances. The items are specified sufficientlyto 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 withdesign parameters specified should be included as part of the report. Examples of the degree ofdocumentation that should be included are shown in Table 1. Appendix A provides a listing ofoptimum 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" highOperating pressure: 200 psigOperating temperature: 150F

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

Operating pressure: 50 psigOperating temperature: 260F

Caustic precontactor (2 req'd)Size: 2' ID X 24' highOperating pressure: 180 psigOperating temperature: 120F

Caustic contactor (2 required)Size: 4'6" ID X 61' highOperating pressure: 180 psigOperating temperature: 120F

Amine knockout drum (2 required)Size: 12' ID X 16'6" highOperating pressure: 180 psigOperating temperature: 120F

Amine flash drum (2 required)Size: 10' ID X 30' highOperating pressure: 60 psig

Operating temperature: 150F

Regenerator reflux drum (2 req)Size: 9' ID X 11' highOperating pressure: 50 psigOperating temperature: 100F

Amine sump (2 required)Size: 8' ID X 8' highOperating pressure: atmosphericOperating temperature: 160F

Sand filters (4 required)Size: 9' ID X 15' highOperating pressure: 50 psigOperating temperature: 185F

Carbon filters (4 required)Size: 9' ID X 15' highOperating pressure: 50 psig

Operating temperature: 185F

Lean amine pumps (3 required,including 1 spare)Type: centrifugalCapacity: 1,475 gpmDrive: motorHp: 325

Amine filter pump (2 required)Type: centrifugalCapacity: 620 gpmDrive: motorHp: 25

Semi-lean amine pump (5required, including 1 spare)Type: centrifugalCapacity: 2.640 gpmDrive: motorHp: 900

12.3.1 Design Philosophy and Equipment Sparing -- Conventional commercially availableequipment should be selected wherever possible. Deviations and special designequipment should be documented.

Sparing should be done to provide 90% availability exclusive of planned maintenanceunless 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 ofpurchased delivered equipment items and then applying factors for: handling and setting;commodity material and labor costs; field indirects; engineering; overhead andadministration; contingencies.


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

12.4.2 Purchased Equipment Costs -- Once the major equipment list has been specified, the baredelivered 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 andan error in estimating these costs could be magnified three to five times in the finalestimate. 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 inlarge quantities and are readily available since the demand for such items is high. Includedin this category are pumps, compressors, heat exchangers, and crushing and grindingequipment. Other items are especially designed specifically for a particular application, asin the case of a new or developing process, and thus must be manufactured or fabricatedas needed.

The cost of equipment can be obtained from the following:

1. Firm bids and quotations2. Previous project equipment costs3. Published equipment cost data4. Preliminary vendor quotations5. Scaleup of data for similar equipment of other capacities.

Table B-2 (in Appendix B) shows how the purchased equipment costs should besummarized. Also shown in this table is the utility summary for each piece of equipmentnecessary for developing capital costs and operating costs, as well as the chemical costssummary 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 aLabor for handling and placing bare equipment bInstallation material c Associated Installation labor dTotal Direct Material a+cTotal Direct Labor b+dTotal Direct Capital a+b+c+d

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


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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 byfactors 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 intooperable 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 differentgeneric 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 is400 and for pressure it is 150 psig. All major items required for the complete installationare considered. The delivered equipment cost is used as the base for the calculationsinvolved. 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 isdesignated to operate at 800 F and at a pressure of 125 psi. Table 2 illustrates the use ofthese 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 bedetermined. Table B-4 lists the labor factors involved in handling and placing various typesof equipment. These factors were developed from a series of detailed estimates andrepresent average values. (In the absence of other data, an average value of 20 percent ofdelivered equipment cost may be used as an approximation for estimating bare equipmentinstallation labor. It should be noted, however, that this factor can vary over a range of 15to 35 percent or more.)

Table 2 -- Typical Costs for Placing Heat Exchanger in Operable Mode (Bare EquipmentCost=$10,000)

Material Labor Foundations $ 600 $ 800

Structures 500 250

Buildings 300 300

Insulation 200 300

Instruments 700 525

Electrical 600 240Piping 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, thenequals 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 heatexchanger example (Table 2) the total installed cost equals $10,000 (bare cost) + $10,000x 0.20 (handling and placing labor cost) + $7,350 (materials cost) + $4,885 (labor cost) or atotal of $24,235.

Table B-3 is intended to set some guidelines for determination of both materials and fieldlabor associated with bulk accounts. The material-labor split is important if any attempt ismade to estimate field labor requirements. Using the first numerical column as anexample, the 4 indicates 4% of the "bare equipment" cost as the factor for foundationmaterial (concrete, rebar), etc. The 133 indicates that 133% of the above 4% should beused as the labor to install the foundations or a total percentage of 9.32% of the "bareequipment" costs for foundations. As is indicated at the top of the column, this is for asolids 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 thelabor component. Sometimes the factors used include both the materials and labor;however, treating materials and labor separately allows the estimator to make an additionalcheck on the reasonableness of the estimate. The credibility of studies that do notdocument 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 forsetting 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 theexperience of the engineers and estimators on the project. Engineering and constructionfirms 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 inTable B-4 may also be used, but vary widely from 5% to 35% of the "bare equipment" costdepending on the difficulty of the work. Although in the overall estimate this allowance israrely an overriding consideration, these costs should not be omitted.

Table 4 provides a summary direct capital cost estimating procedure. Table 3 gives anexample of the use of the procedures.


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Table 3. Typical Direct Capital Cost Summary

DATE: 08/06/84 Equipment and InstallationBY: P. Wellman TITLE: ABC Alcohol CompanyREPORT: Ethanol UNIT: FermentationITEM Quantity Material,

dollarsLabor,dollars

Total cost,dollars

Fermenter 8 904,800 90,500Fermenter agitator 8 112,000 11,200Fermenter cooler 4 519,200 51,900Fermenter circ. pump 8 170,400 25,600Fermenter cleaner 8 16,000 1,600Beer well 1 195,800 19,600Beer well agitator 2 28,000 2,800Beer well cleaner 1 3,000 300Sterilant scale 1 1,400 100Sterilant pump 1 1,100 200Sterilant tank 1 14,500 1,500Sterilization pump 1 18,500 2,800Sterilant tank agitator 1 1,300 100Distillation feed pump 2 44,000 6,700CO 2 Offgas scrubber 1 55,400 5,500Scrubber pump 1 3,200 500Scrubber blower 1 30,000 4,500Scrubber chiller 1 30,000 3,000

2,148,600 228,400 2,377,00Foundations 96,700 128,600Structures 85,900 43,000Buildings 85,900 85,900Insulation 21,500 32,300Instrumentation 107,400 43,000Electrical 128,900 96,700Piping 537,200 134,300Painting 7,500 25,800Miscellaneous 85,900 68,700

1,158,000 658,300 1,816,300Total Direct 3,306,600 886,700 4,193,300


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Sections 12.4.3 and 12.4.4) plus general facilities capital, plus home office overhead andfee, 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 discussedbelow.

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 ofthis 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 processcapital. This practice recommends 10% for contractor and 5% for client costs for a total of15%.

Contingencies: This Recommended Practice assumes two types of contingencies, process

and project, and is based on EPRI (ref. 4.4) philosophy. Contingency covers expectedomissions and unforeseen costs caused by the lack of complete engineering or incompletescope of work. The process contingency factor is applied in an effort to quantify theuncertainty in the technical performance due to limited design data. EPRI (ref. 4.4)provides the following guidelines to aid in assigning process contingency allowances tovarious sections of the plant.

State of Technology Development Process Contingency Allowances asPercentages 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 dataavailable. Thus, a factor of 25% of the total process capital cost is recommended for thosesections of the plant designed on the basis of limited data. For example, utility design andcosts are usually based on well-known data so that the process contingency factor isrelatively 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. Afactor of 25% would be applied to the reactor section if limited engineering data wereavailable. Table B-7 was designed to handle different process contingencies for differentsections of the plant.

Project Contingency is included to cover the costs that would result if a detailed-typecosting was followed as in a definitive-type study. For a budget-type estimate, projectcontingency would range from 15% to 30%. We recommend a factor of 25% of TotalProcess 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 includethe following:

Total Plant CostPrepaid RoyaltiesStart-up and Other Pre-production Costs

Working CapitalSpare PartsInitial Catalyst and ChemicalsLand

Total Plant Cost was discussed in previous sections. The remaining components of TotalCapital Requirements are discussed below.

12.4.7 Prepaid Royalties -- Royalty charges on portions of the plant are usually levied forproprietary 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 includeanother column of numbers.

This practice recommends that a factor of 0.5 of 1% be used on Total Process Capital forPrepaid Royalties.

12.4.8 Start-up Costs -- These costs are incurred for expenses for plant start-up such as operatortraining, 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 monthoperation.

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

d. No credit for byproducts.

The method of estimating the annual operating costs needed above is shown in Section12.5.

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

Process inventory, including raw materials, fuels, in-process materials, finishedproduct 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 (seeSection 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 ofcritical parts to minimize extensive shut-downs for repairs. An allowance of 0.5 of1% 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 WorkingCapital) should be included. The basis for this will vary, depending on the processand 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 inthe 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 byproductsUtilities and chemicalsTotal labor (direct operating, supervision, maintenance and indirect)

Other costsTable B-8, shows the computations necessary to arrive at the total annual costs. Componentsof the annual operating costs are discussed below.

12.5.1 Raw Materials Less Byproducts -- These are commodities that are converted in the processand appear in some form in the final product or byproduct. They may be purchased or soldin the open market or they may be available or sold captively. Current prices are listed inthe trade journals (such as Chemical Marketing Reporter) or actual quotations may beavailable for those commodities obtainable in the open market.

For captive markets, sales price could be assumed if the market would not be affected bythe additional volume. If there is a glut on the market, the manufacturer could assume anoperating cost for the commodity or even an incremental cost if below-capacity plants areinvolved. Since there are many ramifications involved in these assumptions, the actualmarket 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 ofthe operating cost. Extreme care should be taken in arriving at the annual cost of thiscomponent.

In computing the annual cost of this component, the annual consumption (or manufacturein the case of byproducts) is taken from the flow sheets described earlier and multiplied bythe $/unit commodity market price.

In many cases, material balance calculation errors affect operating costs more than they doplant 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 lessprocess-produced steam), power and water. It is assumed in this practice that the onlypurchased utilities are power and fuel. All steam facilities, power distribution facilities andwater treatment facilities are to be included in the plant investment sections as are wastewater and waste product disposal costs. Operating costs of utilities, except for fuel andpower, are assumed negligible. The steam annual cost represents mostly fuel (at the priceassumed 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 inTable B-2. The last page of Table B-2 should show the totals of all the utilities andchemicals. The power to operate each utility is shown on the last line of this table. Thetotal 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 eachsection of the plant is to be made based on judgement and experience. The cost ofoperating labor is often not a major component of the total manufacturing cost, but since itis used to estimate other components, it should be estimated as carefully as possible usingexisting 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 ofoperational steps provides the daily workhours required. Multiplying this product by thenumber 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 othercapacities, 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 andthe factors recommended to calculate their annual costs. It is seen that these are functionsof direct operating labor and total plant investment. If other factors are thought to beappropriate, 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 nochange 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 shouldbe documented as shown in Table B-8. A statement that the equation was used should beincluded in the report.

Note that depreciation is not included in the operating cost estimate. Depreciation is takeninto 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 theeconomic merit of the process is next estimated. There are many measures-of-meritprocedures available that highlight different aspects of a project's economic merit. Most ofthese procedures utilize the time value of money concept. This recommended practicedoes 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 understandablemanner.

The various procedures are discussed briefly below:

Net Present Value: The net present value (NPV) of the project is a measure of how muchthe project will increase (or decrease) the wealth of the owner after accounting for the timevalue of money. It is calculated by summing all project cash flows discounted to a singlepoint in time.

Profitability Ratio: This is the ratio of a project's NPV to the NPV of the initial capitalinvestment. This ratio is useful in selecting among projects with different capital investmentrequirements in situations where investment funds are limited. Higher profitability ratios arerequired when investment funds are in short supply.

Internal Rate of Return: A project's internal rate of return (IRR) is defined as the discountrate for which the present value of the after-tax cash flows is equal to zero. Projects withhigher 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 recoverthe initial capital investment. The advantage of this method is that it is relatively easy tocalculate and understand. Generally, time value of money is ignored. Payback period ismost often used in preliminary estimation where more sophisticated methods are notmerited due to the relative inaccuracy of the data.

Discounted Payback Period: The discounted payback period is similar to the simplepayback period, except that the time value of money is considered. The discountedpayback period is defined as the length of time for the present value of project revenues toequal the present value of the project's initial capital investment. The two payback periodmethods have the drawback of not considering any cash flows that occur after the paybackis reached.

Annualized Production Cost: This method is similar to the revenue requirements techniqueused in the utility industry. The annualized production cost (APC) is defined as the priceper unit of production which, if held constant over the project's lifetime, would produce apresent value of revenues equal to the present value of all project expenses. It may beexpressed in real (constant) dollars, which are measured with the effects of inflationexcluded, or in nominal (current) dollars which are measured with the effects of inflationincluded.

This method has the advantage that revenue streams need not be estimated. Instead, acapital recovery factor (CRF) is applied at an appropriate discount rate that provides therevenue 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 themethod of calculating IRR and limitations on its use. This reference also provides detaileddiscussion 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 followingequations 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 equationneed not occur in the same year. For example, the Total Capital Requirement item occursin 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 thecomplete 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 ofconstruction based upon the anticipated construction and equipment deliveryschedules.

Revenues, total expenses and taxes start in the year after Total Capital Requirementis expended.

Salvage, recovered depreciable capital, recovered working capital and resalable landoccurs 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, andother operating expenses) be individually considered. As a general rule labor for operatingexpenses 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 majorimportance provided that all comparisons are made on the same basis, i.e. with or withoutescalation.

If escalation is not considered, the analysis inherently assumes that any escalation in costswill be offset by an equivalent escalation in revenues.

In the next section, a model is described in which the calculation of the various measures ofmerit 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 andcapabilities. 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 othersystems. It should generate projections of cash flows and calculate the economic measures-of-meritdiscussed previously to help generate the economic feasibility of the system being considered. It shouldbe able to perform sensitivity analyses on key project uncertainties (either performance or cost) so as toaddress the impact of these parameters on project economics.

The use of the model should require the input of general project information (such as process annualproduction rate), general economic assumptions (such as inflation rates), and estimates of projectrevenues, 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 periodspecified by the user. The initial capital costs may be expressed in any year's price level, with the modelaccounting 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 costsmay be expressed in any year's price level, with the model accounting for price escalation between theprice year and the year that the replacement occurs.

Depreciation: Depreciation should be calculated for each year of the project life using current federal taxmethods for each capital and interim capital account. Since 1981, in the United States, the AcceleratedCost Recovery System (ACRS) has been used to determine the appropriate class life and depreciationschedule. The Tax Reform Act of 1986 introduced a modified ACRS depreciation system and alsoincreased the number of ACRS class lives. Table C-1 lists the modified ACRS (MACRS) class lives andcorresponding 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 belonger 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, assuminga 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 ofeconomic 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 toexpress these costs in any convenient price year with applicable escalation rates. The model shouldautomatically calculate the nominal (current year) O&M cash flows in each year of the project's operatinglife. 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 productand byproduct streams. The model should employ user-supplied escalation rates, if desired, to calculatethe nominal (current) dollars in each year of the plant's operating lifetime.

Taxes: The model should automatically calculate property tax payments and combined federal/stateincome tax payments for each year of the project. Property tax rates are highly variable from state tostate and within a particular state. In the absence of specific data, assume 2% of the escalated total plantinvestment for property taxes. The 1986 Tax Reform Act rate of 34% can be used for federal taxcalculation (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 incometaxes 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, thecombined 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 lifeand selling the parts for scrap or for other uses. Salvage occurs in the year following the last year of plantoperation. The user specifies the fraction of the initial capital investment. (Note: It is commonly assumedthat the cost of dismantling will equal the salvage credit and thus salvage is not generally recommendedto be considered.)

Interest: Interest charges should be implicitly accounted for in the model by the use of an after-taxweighted cost of capital. This approach to modeling interest-related cash flows assumes that the debtfraction of the investing corporation remains constant during the life of the investment and that interestexpenses are deductible in the period incurred. Changes in the tax laws make this latter assumptioninvalid in some situations. For this Recommended Practice, it is assumed that the effect of this invalidassumption is negligible.

Weighted Cost of Capital: In general, the proper discount rate for projects of risk similar to a company'scurrent business is equal to its weighted average cost of capital. Assuming a debt fraction of 32% and anequity fraction of 68%, and assuming long-term expected return on corporate bonds (based on 60-yearhistory) 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 deductibilityof 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 onan 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 iscalculated from the other cash flows. The present value of all after-tax cash flows is calculated as follows:

ATCFpv = (Present Value of Total Revenue+ Present Value of Salvage Value)- (Present Value of Operation and Maintenance+ Present Value of Property Tax+ Present Value of Income Taxes)

- (Present Value of Total Init. Capital Investment+ Present Value of Total Interim Capital Inv.)

The calculations for each of the above present values are shown in Table C-4 along with the calculationsfor each of the measures-of-merit. Table C-5 is a summary of the principal assumptions that may beused in the model. Table C-6 is a tabulation of nomenclature for the model. The information provided inTables C-4, C-5, and C-6 may be used as an aid to preparing a satisfactory computer modeling programif 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 flowsheet to examine the best use of a by-product stream. Key variables and assumptions (those in whichsmall changes would have the largest effect on the results of the base line study) are usually chosen forthe analysis. These variables would most likely be found in raw material costs, by-product costs, yieldassumptions, financial analysis assumptions (revenues, cash flow timing) and assumptions in design orcosts 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 atechnical 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 bothwithin or outside the organization.

The Practice is limited to applications of budget-type estimates, although order-of-magnitude estimatesmay also be made using these procedures. Parts of the Practice may also be applied in definitive-typestudies.

Detailed reporting of results as outlined in the next section is extremely important, especially in thoseareas where changes from the Recommended Practice have been made. Enough information must beprovided so as to permit others to duplicate results and make changes with confidence that thecomparisons are valid.

In addition to providing consistency, the Practice, in that it uses a variety of measures-of-merit, may beused 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 increasedbenefit 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 anexisting 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 samebasic 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 anumber of factors and data, an independent study could be made that would verify the results and ensurecomparability. This Practice has recommended the use of a number of factors, but does not require theiruse. What is required is that the factors and data actually used be documented in the report. Table D-1is 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, forreasons 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 theRecommended 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 ofconsistency, verifiability, and comparability. There is no guarantee, implicit or otherwise, that theeconomic performance shown will be duplicated in actual practice."


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APPENDIX A: DESIGN AND COSTING SPECIFICATIONS FOR EQUIPMENT

AGITATED OPEN TANKMATERIAL:

CAPACITY, volume (gal):DIAMETER (ft):HEIGHT (ft): AGITATOR SPEED (rpm): AGITATOR POWER (hp):

AGITATED OPEN TANK, FLOTATION CELLMATERIAL:CAPACITY, volume per cell (cu ft):SINGLE OR DUAL DRIVE:DRIVER POWER (hp):

AGITATED PRESSURE TANKMATERIAL:CAPACITY, volume (gal):

DIAMETER (ft):HEIGHT (ft):PRESSURE (psig): AGITATOR POWER (hp):

AGITATORMATERIAL:CAPACITY (hp):SPEED (rpm):TYPE IMPELLER:TYPE DRIVER:

AIR COMPRESSOR, CENTRIFUGALMATERIAL:INLET CAPACITY (acfm):DISCHARGE PRESSURE (psig):INLET TEMPERATURE (deg F):INLET PRESSURE (psig):DRIVER HORSEPOWER (hp):TYPE DRIVER:STAGES:

AIR DRYERMATERIAL:INLET CAPACITY (acfm):

BLENDER, ROTARY DOUBLE-CONEMATERIAL:CAPACITY (cu ft)SPEED (rpm):DRIVER HORSEPOWER (hp):

BLENDER, ROTARY DRUMMATERIAL:BULK MATERIAL DENSITY (lb/cu ft):DRIVER HORSEPOWER (hp):

CENTRIFUGE, ATM SUSPENDED BASKETMATERIAL:CAPACITY (lb/hr):HORSEPOWER (hp):

CENTRIFUGE, BATCH AUTOMATIC

MATERIAL:CAPACITY (lb/batch):CAPACITY (cu ft):HORSEPOWER (hp):

CENTRIFUGE, BOTTOM BATCHMATERIAL:CAPACITY (lb/hr):DIAMETER (in.):HORSEPOWER (hp):

CENTRIFUGE, BOTTOM UNLOADINGMATERIAL:CAPACITY (lb/hr):DIAMETER (in):

HORSEPOWER (hp):

CENTRIFUGE, DISKMATERIAL:CAPACITY (lb/hr):DIAMETER (in.):HORSEPOWER (hp):

CENTRIFUGE, RECIPROCATING CONVEYORMATERIAL:CAPACITY (lb/hr):DIAMETER (in):

CENTRIFUGE, SCREEN BOWLMATERIAL:CAPACITY (lb/hr):DIAMETER (bowl, in.):LENGTH (bowl, in.):HORSEPOWER (hp):

CENTRIFUGE, SCROLL CONVEYORMATERIAL:CAPACITY (lb/hr):DIAMETER (in.):HORSEPOWER (hp):

CENTRIFUGE, SOLID BOWLMATERIAL:CAPACITY (lb/hr):DIAMETER (bowl, in.):LENGTH (bowl, in.):HORSEPOWER (hp):

CENTRIFUGE, TOP SUSPENDED BATCHMATERIAL:CAPACITY (lb/batch):DIAMETER (in.):HORSEPOWER (hp):


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CENTRIFUGE, TOP UNLOADINGMATERIAL:CAPACITY (lb/hr):DIAMETER (in):HORSEPOWER (hp):

CENTRIFUGE, TUBULARMATERIAL:CAPACITY (lb/hr):DIAMETER (in.):HORSEPOWER (hp):

CENTRIFUGE, VIBRATORYMATERIAL:CAPACITY (tph):DIAMETER (in):FEED SIZE (in):HORSEPOWER (hp):

CONVEYOR (Apron, Open Belt,Closed Belt)MATERIAL:CAPACITY (tons/hr):LENGTH (ft):WIDTH (in.):BULK PRODUCT DENSITY (lbs/cu ft):DRIVER HORSEPOWER (hp):

CONVEYOR (Bucket)MATERIAL:CAPACITY (tph):LENGTH (ft):HORSEPOWER (hp):BULK PRODUCT DENSITY (lb/cu ft):BUCKET SIZE (eg, in. width x in. depth):

CONVEYOR (Pneumatic)(As above except line size instead of width)

CONVEYOR (Roller)(As above except no bulk density but distancebetween centers)

CONVEYOR (Screw)(As above except screw diameter instead ofwidth)

CONVEYOR (Vibrating):MATERIAL:CAPACITY (tph):

LENGTH (ft):PAN WIDTH (in.):

CRANEMATERIAL:CAPACITY (tons):SPAN (ft):TYPE (bridge or beam):

CRUSHER, CONEMATERIAL:

CAPACITY (tph):CONE DIAMETER (in.):PRODUCT SIZE (in.):HEAD TYPE (eg, standard or short):HORSEPOWER (hp):

CRUSHER, GYRATORYMATERIAL:CAPACITY (tph):MANTEL DIAMETER (in.):PRODUCT SIZE (in.):TYPE CRUSHING (eg, primary or secondary):HORSEPOWER (hp):

CRUSHER, IMPACTCAPACITY (tph):FEED OPENING (eg, 48 in. x 50 in.):

CRUSHER, JAWMATERIAL:CAPACITY (tph):FEED OPENING SIZE (eg, 36 in. x 48 in.):PRODUCT SIZE (in.):HORSEPOWER (hp):

CRUSHER, REVERSIBLE HAMMERMILLMATERIAL:CAPACITY (tph):FEED OPENING SIZE (eg, 8 in. x 36 in.):HORSEPOWER (hp):

CRUSHER, ROLL RINGMATERIAL:CAPACITY (tph):FEED OPENING (eg, 18 in. x 28 in.):

HORSEPOWER (hp):CRUSHER, ROTARY

MATERIAL:CAPACITY (tph):HORSEPOWER (hp):

CRUSHER, ROTARY BREAKER (BRADFORD)MATERIAL:CAPACITY (tph):FEED OPENING (in. diameter x in. length):PRODUCT SIZE (in.):HORSEPOWER (hp):

CRUSHER, SAWTOOTH

MATERIAL:CAPACITY (tph):DRIVER HORSEPOWER (hp):

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


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CRYSTALLIZER, BATCH VACUUMMATERIAL:CAPACITY (tpd):CAPACITY (gal):

CRYSTALLIZER, MECHANICALMATERIAL:CAPACITY (tpd):LENGTH (ft):SPEED (rpm):HORSEPOWER (hp):

CRYSTALLIZER, OSLOMATERIAL:CAPACITY (tpd):

DRYER, ATMOSPHERIC TRAYMATERIAL:CAPACITY (lb/hr): AREA OF TOP TRAY (sq ft):

DUST COLLECTOR, WASHEDMATERIAL:CAPACITY (cfm):DIAMETER (in):HEIGHT (ft):

EJECTORMATERIAL:CAPACITY (lb/hr):PUMPING MEDIUM AND PRESSURE(psig)/temperature (deg F):MEDIUM PUMPED AND PRESSURE (torr):NUMBER OF STAGES:

ELECTRIC GENERATORMATERIAL:CAPACITY (kva):

ELEVATORCAPACITY (ton):HEIGHT (ft):TYPE (freight or passenger):

EVAPORATOR, AGITATED FALLING FILMMATERIAL:CAPACITY (lb/hr):CAPACITY (gal):TOTAL HEATING SURFACE AREA (sq ft):SPEED (rpm):

HORSEPOWER (hp):

EVAPORATOR, FORCED CIRCULATIONMATERIAL, SHELL:MATERIAL, TUBES:CAPACITY (lb/hr):CAPACITY (gal):TOTAL HEATING SURFACE AREA (sq ft):SPEED (rpm):

EVAPORATOR, LONG TUBE FILMMATERIAL, SHELL:MATERIAL, TUBES:CAPACITY (lb/hr):CAPACITY (gal):TOTAL HEATING SURFACE AREA (sq ft):SPEED (rpm):

EVAPORATOR, LONG TUBE VERTICALMATERIAL, SHELL:MATERIAL, TUBE:CAPACITY (lb/hr): AREA (sq ft):

EVAPORATOR, STANDARD HORIZONTAL TUBEMATERIAL, SHELL:MATERIAL, TUBE:CAPACITY (lb/hr):CAPACITY (gal): AREA (sq ft):

EVAPORATOR, STANDARD VERTICAL TUBEMATERIAL, SHELL:MATERIAL, TUBE:CAPACITY (lb/hr):CAPACITY (gal): AREA (sq ft):

EVAPORATOR, WIPED FILMMATERIAL:CAPACITY (lb/hr):HEAT TRANSFER AREA (sq ft):

FAN, CENTRIFUGALMATERIAL:

CAPACITY (cfm):DISCHARGE PRESSURE (psig):SPEED (rpm):HORSEPOWER (hp):TYPE (turbo, propeller, rotary blower, vaneaxial,standard industrial):

FEEDER BELTMATERIAL:CAPACITY (cu ft/hr):HORSEPOWER (hp):

FEEDER, BIN-ACTIVATORMATERIAL:DIAMETER (ft):

FEEDER, GRAVIMETRICMATERIAL:CAPACITY (lb/hr):HORSEPOWER (hp):


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FEEDER, ROTARYMATERIAL:CAPACITY (lb/hr):DIAMETER (in):SPEED (rpm):HORSEPOWER (hp):

FEEDER, VIBRATINGMATERIAL:CAPACITY (tph):LENGTH (ft):WIDTH (in):

HORSEPOWER (hp):

FILTER, CARTRIDGEMATERIAL:CAPACITY (gpm):PARTICLE RETENTION SIZE (mesh):OPERATION (manual or automatic):

FILTER, LEAF-DRYMATERIAL:CAPACITY (lb/batch):LEAF AREA (sq ft):

FILTER, PRESSURE LEAF-WETMATERIAL:CAPACITY (lb/batch):LEAF AREA (sq ft):

FILTER, PLATE AND FRAMEMATERIAL:CAPACITY (lb/batch):CAPACITY (frame):PLATE SIZE (in x in):

FILTER, ROTARY DISKMATERIAL:CAPACITY (lb/hr):FILTER AREA (sq ft):SPEED (rpm):HORSEPOWER (hp):

FILTER, ROTARY DRUMMATERIAL:CAPACITY (lb/hr):FILTER AREA (sq ft):SPEED (rpm)HORSEPOWER (hp):

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

FILTER, SEWAGEMATERIAL:CAPACITY (lb/hr):FILTER AREA (sq ft):

FILTER, SPARKLERMATERIAL:CAPACITY (cu ft):FILTER AREA (sq ft):DIAMETER (in):

FLAKER, DRUMMATERIAL:CAPACITY (lb/hr): AREA (sq ft):SPEED (rpm)HORSEPOWER (hp):

FLAREMATERIAL: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, HEATERMATERIAL: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 EXCHANGERMATERIAL, SHELL:

MATERIAL, TUBE:CAPACITY (lb/hr):HEAT TRANSFER AREA (sq ft):TUBE LENGTH (ft):TUBE PRESSURE (psig):SHELL PRESSURE (psig):TYPE (floating head, fixed tube sheet, U-tube,cross-bore, graphite tube)

HEAT EXCHANGER, AIR COOLERMATERIAL:BARE TUBE AREA (sq ft):TUBE LENGTH (ft):DESIGN PRESSURE (psig):NUMBER OF BAYS:

HEAT EXCHANGER, FIN TUBEMATERIAL:TUBE LENGTH (ft):NUMBER OF EXTERNAL FINS:DESIGN PRESSURE (psig):NUMBER OF TUBES PER BUNDLE:

HEAT EXCHANGER, JACKETED(AS PER FIN TUBE)


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HEAT EXCHANGER, SPIRAL PLATEMATERIAL:HEAT TRANSFER AREA (sq ft):TUBE PRESSURE (psig):

HEAT EXCHANGER, SUCTION HEATERMATERIAL:HEAT TRANSFER AREA (sq ft):

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

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

HEAT EXCHANGER, THERMASCREW (REITZ)MATERIAL:HEAT TRANSFER AREA (sq ft):

HEAT EXCHANGER, TWO SCREWMATERIAL:HEAT TRANSFER AREA (sq ft):

HEAT EXCHANGER, WASTE HEAT (WASTE HEATBOILER)

MATERIAL:CAPACITY (lb/hr):HEAT TRANSFER AREA (sq ft):

HEATING UNIT, DOWTHERMMATERIAL:

CAPACITY (mm btu/hr):CAPACITY (process flow, gpm):PRESSURE (psig):TEMPERATURE (deg F):

HOISTLOAD (tons):TYPE (single speed electric, five speed electric,plain hand hoist, geared hand hoist):WITH OR WITHOUT TROLLEY:

HORIZONTAL TANK, CYLINDRICAL (ASME CODE)MATERIAL:CAPACITY (gal):DIAMETER (ft):

PRESSURE (psig):TEMPERATURE (deg F):

HORIZONTAL TANK, MULTI-WALLMATERIAL:CAPACITY (gal):DIAMETER (ft):LENGTH (ft):PRESSURE (psig):TEMPERATURE (deg F):

KNEADERMATERIAL:CAPACITY (lb/hr):CAPACITY (gal):HORSEPOWER (hp):TYPE (stationary, tilting, vacuum):

LININGMATERIAL:LINING AREA (sq ft):MORTAR TYPE IF BRICK:TYPE (acid brick, monolithic, other):TYPE WALL (straight wall tank,small horizontaltank, large horizontal vessel):

MILLMATERIAL:CAPACITY (tph):INSIDE DIAMETER (ft):INSIDE LENGTH (ft):DRY OR WET GRINDING:POWER (hp):SPEED (rpm):TYPE (rod, ball, autogenous, attrition, micro-pulverizer, roller):

MIXERMATERIAL: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):

PUMPMATERIAL:CAPACITY (gpm):HEAD (ft):TEMPERATURE (deg F):LIQUID SPECIFIC GRAVITY:POWER (hp):POWER SOURCE (elec., steam, engine):TYPE (reciprocation, simplex, duplex,

diaphragm, slurry, rotary):

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


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

REBOILERMATERIAL, SHELL:MATERIAL, TUBE:CAPACITY (mm btu/hr):HEAT TRANSFER AREA (sq ft):TUBE LENGTH (ft):TUBE PRESSURE (psig):TYPE (kettle, U-tube, thermosiphon):

REFRIGERATION UNITMATERIAL:CAPACITY (tons):EVAPORATOR TEMPERATURE (deg F):

TYPE (mechanical, centrifugal):

ROTARY DRYERMATERIAL:CAPACITY (lb/hr):PERIPHERAL AREA (sq ft):SPEED (rpm):TYPE (direct, jacketed vacuum, vacuum,indirect):

SCALEMATERIAL:CAPACITY (lbs):BELT WIDTH (in), "ONLY BELT SCALE":TYPE (beam, semi-frame, full-frame, tank, belt,track, truck):

SEPARATION, WATER ONLY CYCLONEMATERIAL:CYCLONE DIAMETER (in), INDIVIDUAL:NUMBER OF CYCLONES:LINEAR OR RADIAL CONFIGURATION:

STACKMATERIAL:HEIGHT (FT):DIAMETER (in):

THICKENERMATERIAL (rake):DIAMETER (ft):

TOWERMATERIAL:CAPACITY (lb/hr):DIAMETER (ft):TRAY SPACING (in.):NUMBER OF TRAYS:PRESSURE (psig):

TOWER, COOLINGMATERIAL: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, PACKEDMATERIAL:DIAMETER (ft):PACKING HEIGHT (ft):PACKING TYPE:PRESSURE (psig):

TRAY DRYING SYSTEMMATERIAL:CAPACITY (lb/hr):TRAY SURFACE (sq ft):POWER (hp):HEATING MEDIUM (steam, air or other):TYPE (turbo, batch vacuum, atmospheric):

TURBINE, GASMATERIAL:CAPACITY (hp):

TURBINE, STEAMMATERIAL:CAPACITY (bhp):SPEED (rpm):STEAM PRESSURE (psig):TYPE (condensing or non-condensing):

VACUUM PUMPMATERIAL:CAPACITY (inlet cfm):ULTIMATE PRESSURE (torr):SPEED (rpm):POWER (hp):TYPE (mechanical, water-sealed, mechanical-booster):

VERTICAL TANK, PROCESSMATERIAL:CAPACITY (gal):DIAMETER (ft):HEIGHT (ft):PRESSURE (psig):

TEMPERATURE (deg F):TYPE (cylindrical, multi-wall, shell, spheroid,sphere, gas holder):


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VERTICAL TANK, STORAGEMATERIAL:VOLUME (gal):DIAMETER (ft):HEIGHT (ft):PRESSURE (psig)TEMPERATURE (deg F):TYPE (flat bottom/roof, fiberglass, light gauge,cone roof, open top, floating roof, cone bottombin, lifter):

VIBRATING SCREEN, RECTANGULARMATERIAL:LENGTH (ft):WIDTH (ft):ENCLOSURE (no or yes):POWER (hp):NUMBER OF DECKS:

VIBRATING SCREEN, RECTANGULAR (HUMMERTYPE)

MATERIAL:CAPACITY (lb/hr):SCREEN AREA (sq in):

DEGREE OF SEPARATION (fine or coarse):NUMBER OF DECKS:

VIBRATING SCREEN, SIFTER CIRCULARMATERIAL:CAPACITY (lb/hr):SCREEN AREA (sq in):SCREEN DIAMETER (in.):POWER (hp):NUMBER OF DECKS:

WATER TREATMENT SYSTEM, BOILERMATERIAL: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 Costa. Material Costs(1) Purchased Equipment Costs(2) Installation Material CostsTotal Direct Material = a(1) + a(2)

b. Labor Costs(1) Labor to Handle and Place Bare Equipment(2) Installation LaborTotal Direct Labor = b(1) + b(2)

Total Direct Cost = 1a + 1b2. Indirect Costs

a. Indirect Field Laborb. Labor Benefits

c. Indirect Field Costs, (Construction Equipment, ConstructionSupport and Tools)Total Indirect Costs = 2a + 2b + 2c

Total Process Capital = A1 + A2B. General FacilitiesC. Home Office, Overhead and FeeD. Contingencies

1. Project2. ProcessTotal Contingencies = D1 + D2

Total Plant Cost = A + B + C + DII. Prepaid Royalties

III. Start-up CostsIV. Working CapitalV. Spare Parts

VI. Initial Catalyst and ChemicalsVII. 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

Coolingwater

TreatedWater

PowerItem Quantityrequired

Deliveredpurchase

cost

ChemicalCost$/hr gpm mgph gpm mgph hp kwh/hr

Steamrequiredmlbs/hr

Steamproducedmlbs/hr

NetSteammlbs/hr

Fuelmmbtu/hr

Pretreatmentsection

Ht. exch.12

Verticalcolumns

12

etc.Reactor section

Ht. exch.12

Furnace12

etc.SeparationsectionEtc.Subtotals XXXX XXX XXX XXX (A) XXX XXXPower for util.kwh/hr

(C) (D) (B) (E)

Total powerkwh/hr

A+B+C+D+E


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AACEI RecommendedPractice No.16R-90

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