NEW FORMULAE FOR ESTIMATING FIXED INVESTMENT  CAPITAL COSTS

 

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ABSTRACT

Fixed capital investment cost is very important for the start up of any chemical plant, because it determine the evaluation of any project in a company.

Before commencement of any chemical plant, there are certain amount needed for the operation such amount is called the working capital. Which is the capital needed for the plant to operate to the point when income is earned. It includes the cost of raw materials and intermediates in the process start up cost, finished methods inventories, and funds to cover outstanding accounts from customers.

Fixed capital is of two types namely; the manufacturing fixed capital investment and non – manufacturing fixed investment. The methods use for estimating or calculating fixed capital investment cost in chemical plant or process industries includes the followings;

• land factors
• detailed –items estimate
• percentage of delivered – equipment cost
• unit – cost estimate
• power factor applied to plant capacity ratio
• investment cost per unit of capacity
• turnover ratios

For any chemical plant operation, fixed capital investment cost is necessary, to determine the evaluation of any project.

CHAPTER ONE

• Introduction 1

1.1    Manufacturing fixed capital investment       2

1.2    Non-Manufacturing fixed capital investment 3

1.3    Method use for calculating fixed

capital investment                                            4

1.4    Types of compartmentalization                     6

CHAPTER TWO

• Literature review 7
• Estimating cash flow 9
• Project evaluation 11
• Project design 11
• Payback period 12
• Public cost indices 13
• Industrial approach 14
• Accounting rate of return (arrangement) 14
• Discounted cash flow

(net present value) method                                       15

• Acceptance criterion 17
• Time value of money 17
• Power factor applied to plant capacity ratio 18
• Investment cost per unit of capacity 19
• Turnover ratios 19
• New method for estimating fixed cost 19

 

CHAPTER THREE

3.0    Estimating fixed cost investment                            21

3.1    Method for estimating fixed cost investment 21

3.2    Detailed – item estimate                                 22

3.3    Unit-cot estimate                                              22

3.4    Percentage of delivered equipment cost       23

3.5    Lang factors for approximation of

capital investment                                           24

3.6    Factors considered in estimating cost                    24

3.7    Prevailing cost                                                  25

3.8    Inflation                                                              26

3.9    Foreign exchange rates                                   28

 

CHAPTER FOUR

• Discussion 32
• Conclusion 34
• Recommendation 36
• References 38

 

 

CHAPTER ONE

• INTRODUCTION

Fixed capital investment cost is very important for the start up of any chemical plant. It determines the evaluation of any project in a company, it is the cost paid to the contractor, such as design and other engineering and construction supervision. All items of equipment and their installation, all piping, instrumentation and control systems, building and structures, and auxiliary facilities such as utilities, land and civil engineering work.         

The cost is not recovered at the end of the project life, other than the scrap value.

Before any chemical plant can operate successfully, there are certain amount needed for the operation such amount is called the working capital, it is the capital needed for the plant to operate to the point when income is earned. It includes the cost of raw materials and intermediates in the process start up cost, finished product inventories, and funds to cover outstanding accounts from customers most of the working capital is recovered at the end of project.

Fixed capital is subdivided into two parts, that is the manufacturing fixed capital investment and non-manufacturing fixed capital investment.

1.1 MANUFACTURING FIXED CAPITAL INVESTMENT

This is the capital necessary for the installed process equipment with all auxiliaries that are needed for complete process operation. Expenses for piping, I instruments, installation, foundations and site preparation are typical examples of cost included in the manufacturing fixed capital investment.

• NON-MANUFACTURING FIXED CAPITAL INVESTMENT

Non-manufacturing fixed capital investment is the capital required for all plant components that are not directly related to the process operation is designated as the non-manufacturing fixed capital investment. These plant components includes the land processing, buildings, I administrative and other offices, warehouses, laboratories, transportation, stipping and receiving facilities, shops and other permanent parts of the plant. The construction overhead cost consists of field, office and supervision expenses, miscellaneous construction costs, contractors fees and contingencies.

In the estimate of any project, accuracy is been considered. The accuracy of an estimate depend on the amount of design detail available, the cost data and the time spent on preparing the estimate.

Cost escalation (inflation) do affect the estimate of the cost of any project if proper care are not taking, sometimes the cost of materials and labour are subjected to inflation with this, all cost calculation use historical data method and also been for costs of future costs for re update of the historical cost data, the published cost indices method is used, it relate present costs to past costs and are base on data for labour, material and energy cost published in government statistical digests.

 

Cost in year A = Cost in year B X cost index year A

Cost index in year B

1.3  METHOD USE IN CALCULATING FIXED CAPITAL INVESTMENT 

There are some methods that are use for the calculation of fixed capital investment cost in chemical plant or industrial. It includes the following:

1. land factors
2. detailed items estimate

• percentage of delivered – equipment cost

1. unit cost estimate
2. power factor applied to plant capacity ratio
3. investment cost per unit of capacity

• turnover ratios

 

The fixed capital investment cost can also be calculated by compartmentalization. It has to do with the consideration of the fixed capital investment  requirement by parts. With this , each identified pars is treated as a separate unit to obtain the total investment cost.

 

 

 

1.4  THERE ARE SO MANY TYPES OF COMPARTMENT AGITATION, THIS ARE              

1) the modular estimate