CHAPTER 7 PROCESS ECONOMICS & COST ESTIMATION

Introduction
The establishment of a profitable and feasible plant is made possible with a good economic
evaluation whereby the economic potentials of the plant will be assessed. The output acquired
from the economic evaluation enables the investors to better evaluate their decision-making
pertaining to the acceptance or rejection of the proposal. A projects profitability is assessed based
on two important criteria namely the product cost as well as the cost of investment. Financial
planning is especially crucial in the development of a plant since its basis revolves around making
the right profit for the plant. Detailed and accurate cost estimation need to be performed by taking
into account all the contributing aspects including process equipment, raw material consumptions,
operating labor as well as capital investment, cost needed for manufacturing purpose, local taxes
and general expenses. The computation of discounted cash flow is performed following the cost
estimation process in order to evaluate the feasibility of the plant besides serving as a tool and
indicator of the plants payback period. The cost which is associated with the plant process is
comprised of

Total process equipment cost

Estimation of fixed capital cost
Estimation of production cost
Cash flow analysis

The total amount of cash inflow for this styrene monomer plant with the production
capacity of 231975.15 MT/year must be sustained at a high value in order to compensate for all
the cash outflow, thus hindering incurred losses at the end of this project. This chapter outlines the
rapid cost estimate as well the detailed estimate of the production of styrene monomers and the
calculations performed in United States Dollar (USD/$) and subsequently converted to Malaysian
Ringgit (MYR/RM) with the conversion rate of $1=RM 4.20. This plant is assumed to operate for
330days/year with a lifetime of 20 years.
Economic Potential

The economic potential (EP) analysis is done to evaluate the preliminary profitability of
styrene monomer production. The economic potential can be calculated as follow: The cost of
raw materials which are ethylene and benzene and the cost of product namely styrene are taken
as the basis to compute the economic potentials. The formulas of economic potential 1, 2 and 3
are shown in the following respectively:

Economic Potential 1= Product Value Raw Material Cost (RM)

Economic Potential 2 = Product Value + By-product Value Raw Material Cost (RM)
Economic Potential 3 = Economic Potential 2 Utilities Cost (RM)

The latest market price of the chemicals used in the styrene monomer plants are acquired
from reliable reference source as to ensure the precision of the economic analysis performed.

The consumption of raw materials per year is calculated as follow:

Ethylene:
350 330 24 28.05
= 77754.6
103
Benzene:
350 330 24 78.11
3
= 216520.92
10

Table 4.4 a: Consumption of Raw Materials

Raw Molecular Weight Consumption
Materials (kg/kmol)
(kmol/hr) (mt/year)

Ethylene 28.05 350.00 77754.60

Benzene 78.11 350.00 216520.92

The cost of raw materials per year can be calculated as follow:
4.2
Ethylene = 1000 77754.6 = 326,569,320 = 326.57
1

4.2
Benzene = 740 216520.92 = 672,947,019.40 =
1

672.95

Raw material cost = Ethylene + Benzene

= (326.57 + 672.95)

= 999.52

Table X: Total Cost of Raw Materials

Consumption Price
Raw Materials Cost (RM/year)
(mt/year) (USD/mt) (RM/mt)

Ethylene 77754.60 1000.00 4200.00 326,569,320.00

Benzene 216520.92 740.00 3108.00 672,947,019.40

Total 999,516,339.40

The production of styrene per year can be calculated as follow:

281.2 330 24 104.16
3
= 231975.1526
10

The production of by-product toluene per year can be calculated as follow:

17.2358 330 24 92.14
3
= 12577.8044
10

Table 4.4 b: Production of Styrene and By-product

Raw Molecular Weight Production
Materials (kg/kmol)
(kmol/hr) (mt/year)

Styrene 104.16 281.2000 231975.1526

 Toluene 92.14 17.2358 12577.8044

The cost of product (styrene) and by-product (toluene) per year can be calculated as follow:
4.2
Styrene = 1250 231975.15 = 1,217.869
1

4.2
Toluene = 631.50 216520.92 = 33.36
1

Product and by-product cost = Styrene + Toluene

= (1,217.869 + 33.36)

= 1,251.23

Table X: Estimated Production of Styrene and By-product

Consumption Price
Raw Materials Cost (RM /year)
(mt/year) (USD/mt) (RM/mt)

Styrene 231975.1526 1250.00 5250.00 1,217,869,551.15

Toluene 12577.8044 631.50 2652 33,360,110.61

Total 1,251,229,662.00

Table 43 shows the tariff rates for high voltage industries during peak and off-peak period provided
by Tenaga Nasional Berhad. This serves as the reference for the tariff rates of industries in
Kemamam, Terengganu.

TABLE 43: Tariff Rates for High Voltage Industries

Tariff E3 - High Voltage Peak/Off-Peak Industrial Tariff
Tariff category Rates
For all kWh during the peak period 33.70 sen/kWh
For all kWh during the off-peak period 20.20 sen/kWh

TABLE 44: Summary of GTE plant Utilities Energy Consumption

Utilities Usage Before HI Total Cost (RM/h)
Cold 141656.1 kW/h 47,738.11 (Peak period)
28,614.53 (Off-peak period)
Hot 65823 kW/h 22,182.35(Peak period)
 13,296.25(Off-peak period)
Total 69,920.46(Peak period)
41,910.78(Off-peak period)
Cost of utilities before Heat Integration =
During peak period (8AM 5PM):
8 hours MYR
RM 69,920.46 = 559,363.68
day day
During off peak period (6PM 8AM):
16 hours MYR
RM 41,910.78 = 670,572.48
day day
million
Total cost for a year = 1.23 330 days of assumed operation
day

million
= 405.88 year

TABLE X: Summary of GTE plant Utilities Energy Consumption

Utilities Usage Before HI Total Cost (RM)
Cold 91366.9 30,790.65(Peak period)
18,456.11(Off-peak period)
Hot 15535.1 5,235.33(Peak period)
3,138.09(Off-peak period)
Total 36,025.97(Peak period)
21,594.20(Off-peak period)

Cost of utilities after Heat Integration =

During peak period (8AM 5PM):
8 hours MYR
RM 36,025.97 = 288,207.79
day day
During off peak period (6PM 8AM):
16 hours MYR
RM 21,594.20 = 345,507.264
day day
MYR
Total cost for a year = 633,715.056 330 days of assumed operation
day

million
= 209.13 year
 The economic potentials of styrene monomers plant are assessed by taking into account the
sales revenue of the plant and the total capital investment in acquiring the raw materials. With that,
an insight into the gross earnings of the styrene monomer plant will be gained from the economic
analysis. The economic potentials calculated for the plant which is assumed to operate 330 days
per annum with 30 days of shutoff are summarized in table X. As the implementation of heat
integration leads to huge saving in the overall cost as indicated by the improved economic potential
3 after heat integration compared to before heat integration, it is recommended that the process of
this plant is to be carried out with heat integration.

million million
EP 1 = (1,217.87 999.52) = 218.35
year year

million million
EP 2 = (1,251,23 999.52) = 251.71
year year

million million
EP 3 (Before HI) = (251.71 405.88) = 154.17
year year

million million
EP 3 (After HI) = (251.71 209.13) = 42.58
year year

Table X: Summary of Economic Potential for Styrene Monomer Production Plant

Economic Analysis
EP 1 Formula Styrene Raw Material
EP 1 Value (RM million/year) 218.35
EP 2 Formula Styrene + Toluene Raw Material
EP 2 Value (RM million/year) 251.71
EP 3 Formula EP 2 Cost of Utilities
EP 3 Value 1 (RM million/year) Before HI -154.17
EP 3 Value 2 (RM million/year) After HI 42.58

From the economic analysis performed through the computation of economic potentials
1,2 and 3 respectively, it can be deduced that the establishment and operation of styrene monomers
plant in Malaysia which utilizes ethylene and benzene as the raw materials is economically feasible
and beneficial.
Capital Investment

Capital investment is defined as the amount of expenditure needed to build the plant and
subsequently putting the plant into operation. It is equivalent to the sum of fixed capital investment
as well as the working capital. Fixed capital investment is expressed as the cost required to
construct the plant as well as equipping the plant with required manufacturing facilities. It is
constituted of two contributing components which are manufacturing as direct cost and
nonmanufacturing as indirect cost. On the other hand, working capital encompasses the necessities
for the normal plant operation. It includes the cost of raw materials and intermediates used in the
production process and the finished product inventories.

Capital Investment Estimation

The approximation of the capital cost of chemical process plants is performed by estimating
the purchased cost of equipment for the designed process while the gauging of other costs can be
done as factors of the equipment cost (Sinnott, 2005). Peters & Timmerhaus stated that the
accuracy of the estimation method based on the knowledge pertaining to the major equipment
items is estimated up to 25%. This is attributed to the incomplete characterizations constituting the
correlations making up the cost equations as well as the market conditions, qualities of construction
and the variations among manufacturers. The capital cost of

Purchased Equipment

The cost of purchased equipment including distillation column, heat exchangers, coolers,
packed bed reactors, mixer and storage tanks are approximated using the purchased and installed
cost of equipment equations which utilize the information pertaining to general dimensions of
equipment such as diameter, height and heat exchange area. Marshall and Swift equipment cost
index (M&S) of year 2011 is employed to perform the estimation of purchased equipment cost.
The value of M& S is 1536.5 during 2011.Table X shows the cost of all purchased equipment
needed for the styrene monomer production plant.

Distillation Column

Installed Cost ($) = (M&S/280)(97.2D1.55 HFC )

Fc = Fm + Ft

where
= diameter (m)
= height (m)

Table X: Material Factor for Distillation Column

Trays
Sieve trays 1.0
Bubble cap 1.8
Complicated trays 3.0

Table X: Material Factor for Distillation Column

Material
Carbon steel 1.0
Stainless steel 1.7

Table X: Cost of Distillation Columns

DC Remarks D (m) Stages H (m) Installed Installed
cost, $ cost, RM
1 T-101 1.168 77 55.31 1.0 1.7 2.7 101331.54 425592.47
2 T-102 1.168 77 55.31 1.0 1.7 2.7 101331.54 425592.47
3 T-103 1.473 72 37.26 1.0 1.7 2.7 97805.14 410781.59
4 T-104 1.473 72 37.26 1.0 1.7 2.7 97805.14 410781.59
Total cost of distillation column 1672748.12
 Heat Exchanger
Purchased cost ($) = (M&S/280)(474.7 A0.65 Fc )
Installed cost ($) =(M&S/280)(474.7 A0.65 )(2.29 + Fc )
Fc = Fm (Fd + Fp )

where
A = heat exchanger area in m2 (20 < A < 500 m2 /shell)
Fm = correction factor for material
Fd = correction factor for design type
Fp = correction factor for design pressure

Table X: Material Factors of Shell & Tubes Heat Exchanger

Shell/tubes CS/CS CS/Brass CS/Monel CS/SS SS/SS Monel/Monel CS/Titanium
Fm 1.0 1.30 2.15 2.81 3.75 4.25 8.95

Table X: Correction Factors for Shell & Tubes Heat Exchanger

Design type Design pressure, bar
Kettle reboiler 1.35 < 10 0.0
Floating head 1.00 20 0.10
U-tube 0.85 30 0.25
Fixed tube sheet 0.80 60 0.52
75 0.55

Table X: Cost of Heat Exchangers

Heat
Heat Remarks exchange Purchased Installed Total cost Total cost

exchanger area, A cost ($) cost ($) ($) (RM)
( )
1 32.58 1.0 0.85 0.55 1.82 35102.66 92520.58 127623.24 536017.59
2 44.53 1.0 0.85 0.55 1.82 43007.68 113355.97 156363.65 656727.33
3 36.87 1.0 0.85 0.55 1.82 38041.65 100266.92 138308.57 580895.99
4 30.23 1.0 0.85 0.55 1.82 33435.41 88126.18 121561.58 510558.64
5 29.74 1.0 0.85 0.55 1.82 33082.13 87195.04 120277.16 505164.08
 6 27.89 1.0 0.85 0.55 1.82 31729.51 83629.92 115359.42 484509.58
7 33.19 1.0 0.85 0.55 1.82 46187.01 104301.44 150488.45 632051.49
Total Cost of Heat Exchanger 3905924.70

Cooler
Purchased cost ($) = (M&S/280)(474.7 A0.65 Fc )
Installed cost ($) =(M&S/280)(474.7 A0.65 )(2.29 + Fc )
Fc = Fm (Fd + Fp )

where
A = heat exchanger area in m2 (20 < A < 500 m2 /shell)
Fm = correction factor for material
Fd = correction factor for design type
Fp = correction factor for design pressure

Table X: Material Factors of Cooler

Shell/tubes CS/CS CS/Brass CS/Monel CS/SS SS/SS Monel/Monel CS/Titanium
Fm 1.0 1.30 2.15 2.81 3.75 4.25 8.95

Table X: Correction Factors for Cooler

Design type Design pressure, bar
Kettle reboiler 1.35 < 10 0.0
Floating head 1.00 20 0.10
U-tube 0.85 30 0.25
Fixed tube sheet 0.80 60 0.52
75 0.55

Table X: Cost of Coolers

Heat
Remarks exchange Purchased Installed Total cost Total cost
Cooler
area, A cost ($) cost ($) ($) (RM)

( )
1 18.64 1.0 0.85 0.55 1.82 31743.51 71684.53 103428.04 434397.77
2 16.55 1.0 0.85 0.55 1.82 29382.17 66352.04 95734.21 402083.68
3 17.89 1.0 0.85 0.55 1.82 30907.36 69796.29 100703.64 422955.30
Total Cost of Cooler 1259436.75
Heater
Purchased cost ($) = (M&S/280)(474.7 A0.65 Fc )
Installed cost ($) =(M&S/280)(474.7 A0.65 )(2.29 + Fc )
Fc = Fm (Fd + Fp )

where
A = heat exchanger area in m2 (20 < A < 500 m2 /shell)
Fm = correction factor for material
Fd = correction factor for design type
Fp = correction factor for design pressure

Table X: Material Factors of Heater

Shell/tube CS/C CS/Bras CS/Mone CS/S SS/S Monel/Mone CS/Titaniu
s S s l S S l m
Fm 1.0 1.30 2.15 2.81 3.75 4.25 8.95

Table X: Correction Factors for Heater

Design type Design pressure, bar
Kettle reboiler 1.35 < 10 0.0
Floating head 1.00 20 0.10
U-tube 0.85 30 0.25
Fixed tube sheet 0.80 60 0.52
75 0.55

Table X: Cost of Heaters

Heater Remarks Heat Purchased Installed Total Total cost
exchange cost ($) cost ($) cost ($) (RM)
area, A
( )
1 27.88 1.0 0.85 0.55 1.82 64166.17 41238.75 93127.06 134365.81
2 25.34 1.0 0.85 0.55 1.82 61971.03 38756.04 87520.52 126276.56
3 29.08 1.0 0.85 0.55 1.82 63207.51 42383.96 95713.22 138097.18
Total Cost of Heater 1674706.12
Compressors
Purchased cost ($) = (M&S/280)(664.1 P 0.82 Fc )(Fc )

where P = power of the compressors in kW

Table X: Correction Factor for Compressor

Design type
Centrifugal, motor 1.00
Reciprocating, steam 1.07
Centrifugal, turbine 1.15
Reciprocating, motor 1.29
Reciprocating, gas engine 1.82

Table X: Cost of Compressors

Compressor Remarks Power (kW) Purchased Purchased
cost ($) cost (RM)
1 CP-101 429.71 1 525789.48 2208315.81
Total cost of compressor 2208315.81
Packed Bed Reactor
Purchased cost ($) = (M&S/280)(957.9 D1.066 H 0.82 Fc )
Installed cost ($) =(M&S/280)(957.9 D1.066 H 0.82 )(2.29 + Fc )
Fp = 1 + 0.0074(P 3.48) + 0.00023(P 3.48)2
Fc = Fm Fp

where
both D(diameter) and H(height) are expressed in meter
P is expressed in bar
Fm = correction factor for material
Fp = correction factor for design pressure

Table X: Material Factors for PBR

Shell material Carbon steel Stainless steel Monel Titanium
Fm clad 1.00 2.25 3.89 4.25
Fm solid 1.00 3.67 6.34 7.89

Table X: Total Cost of PBR

PBR Remarks Diameter, Height, Pressure,
m m bar
1 R-101A 3.4 10.49 30 1.36 3.67 4.98
2 R-101B 3.51 10.5 30 1.36 3.67 4.98
3 R-102 3.49 10.62 18 1.16 3.67 4.24
4 R-103 3.6 11.25 0.95 0.98 3.67 3.61
5 R-103A 3.48 11.03 0.65 0.98 3.67 3.60

Purchased cost ($) Installed cost ($) Total cost ($) Total cost (RM)
663522.9825 968398.5451 1631921.528 6854070.416
686967.4436 1002615.268 1689582.712 7096247.388
586637.3271 903305.3406 1489942.668 6257759.204
540464.8435 883622.5236 1424087.367 5981166.942
511942.1881 837603.0614 1349545.249 5668090.048
Total cost of packed bed reactors 31857334.00
Pump
Purchased cost ($) = (M&S/280)(517.5)(BHP)0.82 Fc
Installed cost ($) =(M&S/280(517.5)(BHP)0.82 (2.11 + Fc )
Fc = F d

where
BHP = brake horsepower; 30<BHP<10000
Fd = correction factor for design type

Table X: Correction Factors for Pump

Design type
Centrifugal, motor 1.00
Reciprocating, steam 1.07
Centrifugal, turbine 1.15
Reciprocating, motor 1.29
Reciprocating, gas engine 1.82

Table X: Cost of Pumps

Pump Remarks Brake Purchased Installed Total Total cost
Horsepower cost ($) cost ($) cost ($) (RM)
(BHP)
1 P-101 0.0923 1 402.49 1251.73 1654.22 6947.71
2 P-101S 0.0923 1 402.49 1251.73 1654.22 6947.71
3 P-102 0.1336 1 545.06 1695.14 2240.21 9408.87
4 P-102S 0.1336 1 545.06 1695.14 2240.21 9408.87
5 P-103 0.081 1 361.61 1124.61 1486.22 6242.14
6 P-103S 0.081 1 361.61 1124.61 1486.22 6242.14
7 P-104 0.0499 1 243.07 755.94 999.01 4195.84
8 P-104S 0.0499 1 243.07 755.94 999.01 4195.84
9 P-105 0.0622 1 291.20 1196.84 1196.84 5026.71
10 P-105S 0.0622 1 291.20 1196.84 1196.84 5026.71
Total cost of pump 63642.53
Mixer
Ce = CS n

where Ce= purchased equipment cost, $

C= cost constant
S= characteristic size parameter
n= index for that type of equipment

Table X: Cost Factor for Mixer

Equipment Size unit, S Size Range Constant, C Index,n
($)
Mixer Power, kW 5-75 3000 0.5

Table X: Cost of Mixers

Mixer Remarks Size, S Constant, Index, n Purchased Purchased
C cost ($) cost (RM)
1 M-101 9.71 3000 0.5 9348.262 39262.7
2 M-102 11.02 3000 0.5 9958.916 41827.45
3 M-103 12.55 3000 0.5 10627.79 44636.73
4 M-104 7.58 3000 0.5 8259.54 34690.07
5 M-105 10.88 3000 0.5 9895.45 41560.9
6 M-106 9.49 3000 0.5 9241.75 38815.36
Total cost of mixer 240793.21
Splitter
Ce = CS n

where Ce= purchased equipment cost, $

C= cost constant
S= characteristic size parameter
n= index for that type of equipment

Table X: Cost Factor for Splitter

Equipment Size unit, S Size Range Constant, C Index,n
($)
Splitter Power, kW 5-75 3000 0.5

Table X: Cost of Splitters

Splitter Remarks Size, S Constant, Index, n Purchased Purchased
C cost ($) cost (RM)
1 S-101 6 3000 0.5 7868.926 33049.49
2 S-102 9 3000 0.5 9232.01 38774.44
3 S-103 11 3000 0.5 10248.41 43043.34
Total cost of splitter 114867.3
 Storage tank
C = Fm exp[11.662 0.61041(ln V) + 0.045368 (ln V) 2 ]

where 21,000 < V < 11,000,000 gal

Fm = 2.4 for stainless steel

Table X: Cost of Storage Tanks

Usage/production Volume, V
Storage Purchased Purchased
Remarks
tank cost ($) cost (RM)
/ /

1 Ethylene 25.6215 6768.48 47379.36 47379.36 198993.312
2 Benzene 30.9894 8186.53 57305.71 80464.88 337952.496
3 Styrene 32.1933 8504.57 59531.99 81655.66 342953.772
Total Cost of Storage Tank 879899.58

Gael D. Ulrich (1984), A Guide to Chemical Engineering Process Design and Economics,John Wiley and Sons, Inc.,
New York
 Table X: Purchased Cost Equipment
Equipment Amount Purchased Cost of
Equipment (RM)
Heat exchanger 7 3,905,924.70
Heater 3 1,674,706.12
Cooler 3 1,259,436.75
Distillation column 6 1,672,748.12
Three phase separator 1 631,180.00
Packed bed reactor 5 31,857,334.00
Pump 10 63,642.53
Compressor 1 2,208,315.81
Mixer 6 240,793.21
Splitter 3 114,867.3
Storage tank 3 879,899.58
Total 44,508,848.12

All of the cost of major and minor equipment installed for the styrene monomer production
plant is computed as shown in Table X and the total purchased cost of equipment is RM
44,508,848.12 with the currency rate of $ 4.20 to RM 1. The purchased cost of equipment (PCE)
can be used to calculate the fixed capital investment and the working capital.

Fixed Capital Investment

In order to estimate the fixed capital investment more accurately, individual consideration
of the cost factors compounded into Lang factor is done whereby the contribution of respective
direct cost items to the total capital cost is computed through the multiplication of the total amount
of purchased cost equipment (PCE) with an appropriate factor to obtain the physical plant cost
(PPC). Subsequently, the fixed capital cost is acquired by multiplying physical plant cost with
factors accounting for indirect cost items. The calculation of the fixed capital investment for both
the direct and indirect cost items are listed in table X and Y respectively.
 Table X: Typical factors of CAPEXs direct cost items (Citation-Sinnott)
Item Process type (Fluids)
f1 Equipment erection 0.4
f2 Piping 0.7
f3 Instrumentation 0.2
f4 Electrical 0.1
f5 Buildings, process 0.15
f6 Utilities 0.5
f7 Storages 0.15
f8 Site development 0.05
f9 Ancillary buildings 0.15
Total 2.40

Total physical plant cost, PPC = PCE (1+f1 + +f9)

= RM 44,508,848.12 (1+2.40)
=RM 151,330,083.6

Table X: Typical factors of CAPEXs indirect cost items (Citation-Sinnott)

Item Process type (Fluids)
f10 Design and Engineering 0.3
f11 Contractors Fee 0.05
f12 Contingency 0.1
Total 0.45

Fixed capital cost = PPC (1+f10+f11+f12)

= RM 151,330,083.6 (1+0.45)
= RM 219,428,621.2

Working Capital
Working capital is defined as the supplemental capital required, over and above the fixed
capital, to begin operating the plant up to the stage in which profit is acquired. Sinnott (2005)
stated that the working capital of a project is computed as 15% of the total fixed capital cost.

Working capital = Fixed capital cost x 0.15

= RM 219,428,621.2 x 0.15
 = RM 32,914,293.18

Total Capital Investment

Sinnott (2005) indicated that the the capital investment of a plant is the sum of direct,
indirect cost as well as working capital.

CAPEX = Working capital + Fixed capital

= RM 32,914,293.18 + RM 219,428,621.2 +
= RM 253,342,914.4

Annual Operating Expenditure (OPEX)

According to Peter & TImmerhaus (2003), the approximation of the total operating costs,
also known as annual operating expenditure consist of three major contributing aspects including:

i) Fixed charges which indicates expenses that are remain relatively constant throughout the
operation period and are independent of the rate of production of the plant.
ii) Variable production cost which is the cost directly associated with the manufacturing
operation.
iii) Plant overhead cost which are the expenses similar to the fixed charges which do not vary
despite the changes in the production rate of plant.

Fixed Operating Cost

Maintenance and Repairs

According to Sinnott (2005), the maintenance and repair of a plant is calculated as 5 10% of the
fixed capital investment. The factor of 10% is assumed for this styrene monomer plant.

Maintenance and repair cost = 0.1 x Fixed capital investment (FCI)

= 0.1 x RM 219,428,621.2

= RM 21,942,862.12
 Operating Supplies

Douglas (1988) stated that the rough estimation of operating supplies cost is computed as 10% of
the total maintenance and repair cost.

Operating supplies cost = 0.1 x Maintenance and repair cost

= 0.1 x RM 21,942,862.12

= RM 2,194,286.212

Operating Labor

Peters and Timmerhaus (1991) stated that 40 workers are needed per day in a process plant by
taking into account the basis of the typical labour requirements for process equipment whereby 2
working shifts are implemented and 10 workers/day are required for each shift. This is equivalent
to 20 workers/day. According to Malaysia Industrial Development Authority, MIDA, (2013), a
semi-skilled labourer has salary scheme of approximately USD 463/month.

Operating labor cost = 20 x USD 463/month x 12 months/year x RM4.2/USD

= RM 466,704

Direct Supervision and Clerical Labour

According to Sinnott (2005), the cost of direct supervision and clerical labour required for a plant
is calculated as 30% of operating labor cost.

Direct supervision and clerical labour cost = 0.3 x Operating labor cost

= 0.3 x RM 466,704

= RM 140,011.20
 Laboratory Charges

Laboratory charges is estimated to be 20% of the operating labor cost (Sinnott, 2005).

Laboratory charges = 0.2 x Operating labor cost

= 0.2 x RM 466,704

= RM 93,340.80

Plant Overheads

Sinnott (2005) indicated that plant overheads can be calculated as 50% of the operating labor
cost.

Plant overheads cost = 0.5 x Operating labor cost

= 0.5 x RM 466,704

= RM 233,352

Capital Charges

Sinnott (2005) suggested that capital charges constitute 10% of the fixed capital investment.

Capital charges = 0.1 x Fixed capital investment (FCI)

= 0.1 x RM 219,428,621.2

= RM 21,942,862.12

Local Taxes

Local taxes are estimated to be 2% of the fixed capital investment.

Local taxes = 0.02 x Fixed capital investment (FCI)

= 0.02 x RM 219,428,621.2

= RM 4,388,572.424
 Insurance

The insurance of a process plant is estimated to be 1% of the fixed capital investment.

Insurance = 0.01 x Fixed capital investment (FCI)

= 0.01 x RM 219,428,621.2

= RM 2,194,286.212

Royalties and License Fees

Similarly to the insurance cost a process plant, royalties and license fees is computed as 1% of
the fixed capital investment.

Royalties and license fees = 0.01 x Fixed capital investment (FCI)

= 0.01 x RM 219,428,621.2

= RM 2,194,286.212

The table below summarizes the computation of total fixed operating cost of the styrene
monomer plant.

Table X: Fixed operating cost

Cost Item Method Price, RM/year
Maintenance and Repair 10% of fixed capital investment 21,942,862.12
Operating Supplies 10% of maintenance and repair cost 2,194,286.212
Operating Labor Estimate 20 workers with average 466,704
salary of USD 463/month
Direct Supervision and 30% of operating labor cost 140,011.2
Clerical Labour
Laboratory Charges 20% of operating labor cost 93,340.8
Plant Overheads 50% of operating labor cost 233,352
Capital Charges 10% of fixed capital investment 21,942,862.12
Local Taxes 2% of fixed capital investment 4,388,572.42
Insurance 1% of fixed capital investment 2,194,286.212
Royalties and License Fees 1% fixed capital investment 2,194,286.212
Total fixed operating cost 55,790,563.3
Therefore, total fixed operating cost is RM 55,790,563.3/year.

Variable Operating Cost

Variable operating cost is dependent on the rate of production and includes the cost of
raw materials, miscellaneous and utilities.

Cost of raw materials

The raw materials for the production of styrene monomers are listed in the table below:

Table X: Cost of raw materials

Raw Material Consumption ( Consumption Price Price
kg/h) (MT/yr) (USD/mt) (RM/mt) (RM/year)
Ethylene 9817.5 77754.60 1000.00 4200.00 326,569,320.00
Benzene 27338.5 216520.92 740.00 3108.00 672,947,019.40
Total raw material cost 999,516,339.40

The raw material cost for styrene monomer plant is approximately estimated to be MYR
999,516,339.40.

Miscellaneous Materials
Miscellaneous materials are the materials utilized in the plant operation aside from the raw
materials and maintenance materials. These materials encompass

i) Cleaning material
ii) Accessories and instrument charts
iii) Pipe installation gaskets
iv) Personal protective equipment

The cost of miscellaneous materials is approximated to be 10% of maintenance and repair cost
(Sinnott, 2005).
Miscellaneous materials cost = 0.1 x Maintenance and repair cost
= 0.1 x RM 21,942,862.12
= RM 2,194,286.21

Utilities

Utilities are used in the styrene monomer plant for cooling and heating purposes. The cost of
utilities is estimated as 10% of fixed capital investment calculated earlier.

Utilities cost = 0.1 x Fixed capital investment (FCI)

= 0.1 x RM 219,428,621.2

= RM 21,942,862.12

Total Variable Operating Cost

The variable operating cost is the total sum of raw material, miscellaneous materials and
utilities cost.

Variable operating cost = Cost of raw material + Cost of Miscellaneous + Cost of utilities

= RM 999,516,339.40 + RM 2,1942,862.12 + RM 21,942,862.12

= RM 1,023,653,487.73
The tabulation of variable operating cost is summarized in Table X.

Table X: Variable operating cost

Cost Item Method Price, RM/year
Raw Materials Shown in Table X 999,516,339.40
Miscellaneous 10% of maintenance and repair cost 2,194,286.21
Utilities 10% of fixed capital investment 21,942,862.12
Total variable operating cost 1,023,653,487.73
Total Direct Operational cost = Variable operating cost + Fixed operating cost

= RM 1,023,653,487.73 + RM 55,790,563.3

= RM 1,079,444,051.03

General Expenses (Indirect Operating Cost)

The general expenses of a plant consist of the administrative costs, distribution and marketing
expenses and expenses for research and development (R&D). The table below shows the
tabulation for the general expenses of the styrene monomer plant.

Table X: General expenses

Cost Method Price, RM/year

Administrative cost 10% of operating labor+ maintenance + 2,254,957.732
supervision
Distribution & marketing 10% fixed capital investment 21,942,862.12
Research & development 5% of fixed capital investment 10,971,431.06
General Expenses (Indirect operational cost) 35,169,250.91

Thus, the OPEX can be computed as following:

Annual operating expenditure, OPEX = Direct operational cost + Indirect operational cost

= RM 1,079,444,051.03 + RM 35,169,250.91

= RM 1,114,613,301.94
Estimation of Total Revenue

The revenue generated from the selling of the main product, styrene as well as the by-
product, toluene is the source of cash inflow for the styrene monomer plant. Assuming that the
plant operated for 330 days per year with 30 days of shut-off, the total revenue generated is
calculated using the equation shown below.

Annual sales revenue = [ () ( ]

The total revenue generated for the styrene monomer plant is summarized in table X.

Table X: Total Revenue

Product Production ( Production Price Price (RM/year)

kg/h) (MT/yr) (USD/mt) (RM/mt)
Styrene 29289.79 231975.1526 1250.00 5250.00 1,217,869,551.15
Toluene 1588.11 12577.8044 631.50 2652 33,360,110.61
Total product revenue 1,251,229,662.00

Therefore, the total annual revenue of the plant is RM 1,251,229,662.00/ year.

Since the total annual revenue of the plant is not equivalent to the gross earning attributed
to the expenditures which must be deducted from the revenue, the gross earning is calculated as
following.

Gross Earning = Total Annual Revenue Annual Operating Expenditure

= RM 1,251,229,662.00 RM 1,114,613,301.94
= RM 136,616,360.06
Profitability Analysis

Assumptions:

1. The plant construction period is 3 years

2. The plant life of this project is 20 years
3. The plant operates 330 days a year (7920 hours)
4. The operating cost and raw materials will be increase by 2% per year
5. The income tax per year is 26% net profit
6. The minimum attractive rate of return (MARR) is 15%
7. The rate of return (ROR) is 25-30%

Start-up Period

Table X: Cost estimation of start-up period

Year Cost Estimation Explanation Cost (RM)

1 30% CAPEX Long lead-time items+ Engineering Cost 81,045,467.97
2 60% CAPEX Procurement and construction 162,090,935.9
3 10% CAPEX Remaining construction 27,015,155.99
Total capital investment 270,151,559.90

Depreciation

, =

Where,
B- Total capital investment
SV- Salvage value (2% of fixed capital cost)
N- Total plant life
270,151,559.90 (0.02 216,121,248)
= = 13,183,396
20
 Cumulative Cash Flow

Annual Cash Federal Net Profit

Sales Depreciati Total Net Profit Net Cash Income
capital Income Income after Taxes Accumulation of
Year Income on Expenses ANP=A(CI)- A(NCI)=A(BD)
investment A(CI)=A(S)- Taxes ANNP=ANP- ANNP
A(S) A(BD) A(TE) A(BD) +ANNP
(AI) A(TE) A(IT) A(IT)
-2 -81045468 - - - - - - - - (93097818)
-1 -162090936 - - - - - - - - (243136404)
0 -27015156 - - - - - - - - (270151560)
1 - 1251225888 13183396 1089999156 161226732 148043336 37010834 111032502 124215898 (145935662)
2 - 1276250406 13183396 1111799139 164451267 151267871 37816968 113450903 126634299 (19301362)
3 - 1301775414 13183396 1134035122 167740292 154556896 38639224 115917672 129101068 109799706
4 - 1327810923 13183396 1156715824 171095098 157911702 39477926 118433777 131617173 241416879
5 - 1354367141 13183396 1179850141 174517000 161333604 40333401 121000203 134183599 375600478
6 - 1381454484 13183396 1203447144 178007340 164823944 41205986 123617958 136801354 512401832
7 - 1409083574 13183396 1227516087 181567487 168384091 42096023 126288068 139471464 651873296
8 - 1437265245 13183396 1252066408 185198837 172015441 43003860 129011580 142194977 794068273
9 - 1466010550 13183396 1277107736 188902813 175719417 43929854 131789563 144972959 939041232
10 - 1495330761 13183396 1302649891 192680870 179497474 44874368 134623105 147806501 1086847733
11 - 1525237376 13183396 1328702889 196534487 183351091 45837773 137513318 150696714 1237544448
12 - 1555742124 13183396 1355276947 200465177 187281781 46820445 140461336 153644732 1391189179
13 - 1586856966 13183396 1382382486 204474480 191291084 47822771 143468313 156651709 1547840889
14 - 1618594105 13183396 1410030135 208563970 195380574 48845143 146535430 159718827 1707559715
15 - 1650965988 13183396 1438230738 212735249 199551853 49887963 149663890 162847286 1870407001
16 - 1683985307 13183396 1466995353 216989954 203806558 50951640 152854919 166038315 2036445316
17 - 1717665013 13183396 1496335260 221329753 208146357 52036589 156109768 169293164 2205738480
18 - 1752018314 13183396 1526261965 225756349 212572952 53143238 159429714 172613110 2378351591
19 - 1787058680 13183396 1556787204 230271476 217088079 54272020 162816060 175999456 2554351047
20 - 1822799854 13183396 1587922949 234876905 221693509 55423377 166270132 179453528 2733804574
Rate of Return (ROR)

= 100%

2733804574
= 100% = 27.34%
20 500000000

The ROR=27.34% which is greater than the minimum attractive rate of return (MARR=15%)
and between 25% to 30%. Therefore, the project is economically feasible to be built.

Payback Period

Figure X: Graph of Payback Period

The payback period of the styrene production plant is 2 years, and 5 years from the initial startup.
The payback period of this plant is less than 5 years and it is proven that it is profitable to build
the styrene plant.
Tabulation of Net Present Worth (NPW)

Net present worth is calculated to determine the total value that could be obtained over a period.
This would help to provide a better understanding and accurate results on the payback period. The
final net present worth is positive value indicate that the project is profitable.
=

=
(1 + )
=1

Where,
- estimated cash net flow in year n
- interest rate
- project life, year

Based on table X, the project can be considered as profitable as the total net present worth of the
project is RM 1,205,704,900.80 at the end of the project.

Discounted Cash Flow Rate of Return (DCFRR)

DFCRR is to determine the present worth earnings. This is to find the interest rate where the
cumulative net present worth is zero at the end of the project. This rate is a measure of the
maximum rate that the project able to pay and also break even at the end of the project.

=0
(1 + )
Where,
- Future worth of the net cash flow in year n
r- the discounted cash flow rate of return (per cent/100)
1
=
(1 + )
Where,
-discount factor
- year of project life which cash flow applies
 Net Cash Present Worth at Discounted Cash Flow (at 15%)
Year, n
Income A(NCI) 10%
-2 -81045468 -
-1 -162090936 -
0 -27015156 -
1 124215898 112923543.64
2 126634299 104656445.45
3 129101068 96995543.20
4 131617173 89896300.12
5 134183599 83317457.82
6 136801354 77220797.93
7 139471464 71570914.01
8 142194977 66335006.20
9 144972959 61482686.64
10 147806501 56985804.59
11 150696714 52818278.93
12 153644732 48955946.59
13 156651709 45376420.12
14 159718827 42058959.05
15 162847286 38984345.53
16 166038315 36134775.00
17 169293164 33493749.98
18 172613110 31045985.09
19 175999456 28777317.44
20 179453528 26674623.46
Total NPW 1205704900.80