Chapter 4

COSTING AND PROJECT EVALUATION

I. Estimation of Equipment Cost

In the past, the estimation of equipment cost is quite laborious and tedious job which

requires working with general equations or chart, or obtain cost relations on equipment size,

operating conditions, material of construction, equipment type, and auxiliary equipment

considerations (Peters, Timmerhaus, & West, 2003). For a more accurate equipment cost

estimation, equipment price quotation from a suitable vendor must be provided (Turton et. al

2012).

Fortunately, because of the rapid technological advancement, the routinely process of cost

estimation has become easier. Equipment cost estimation can now be done automatically, with

increased accuracy than previous practices, using a computer software.

Here, the estimation of purchased equipment costs is based on the capacity of the

equipment calculated in the equipment design and is estimated using CAPCOST 2008 from the

book “Analysis, Synthesis and Design of Chemical Processes” by Turton et al. The necessary data

like the current cost index based on the Chemical Engineering Plant Cost Index (CEPCI) is used.

Currently, for the first quarter of 2017, Chemical Engineering Plant Cost Index is equivalent to

553.1.
Table 4.1 Table of Equipment Cost Using CAPCOST 2008 (CEPCI = 553.1)
Compressors Compressor Type Purchased Equipment Bare Module
Cost Cost
C-101 Rotary $33,200 $80,000
Conveyors Type Purchased Equipment Bare Module
Cost Cost
Cv-101 Screw $9,920 $19,800
Cv-102 Screw $8,030 $16,100
Exchangers Exchanger Type Purchased Equipment Bare Module
Cost Cost
E-101 Floating Head $38,700 $127,000
E-102 Floating Head $26,200 $86,300
E-103 Floating Head $25,600 $84,400
Pumps (with Pump Type Purchased Equipment Bare Module
drives) Cost Cost
P-101 Centrifugal $7,480 $29,800
P-102 Centrifugal $6,930 $27,600
P-103 Centrifugal $6,830 $27,200
P-104 Centrifugal $6,830 $27,200
P-105 Centrifugal $6,830 $27,200
P-106 Centrifugal $6,830 $27,200
Reactors Type Purchased Equipment Bare Module
Cost Cost
R-101 Autoclave $909,000 $1,360,000
R-102 Jacketed Agitated $115,000 $172,000
R-103 Fermenter $66,200 $99,300
Towers Tower Description Purchased Equipment Bare Module
Cost Cost
T-101 12 Carbon Steel Sieve $27,200 $71,800
Trays
T-102 20 Carbon Steel Sieve $28,800 $53,400
Trays
T-103 45 Carbon Steel Sieve $69,900 $123,000
Trays
T-104 Empty Vertical Vessel $18,600 $79,400
T-105 Empty Vertical Vessel $18,600 $79,400
Miller Miller Description Purchased Equipment Bare Module
Cost Cost
M-101* Roller Mill $88,423.0342 -
(Note: M-101 is manually inputted because there is no miller equipment in CAPCOST)
For M-101,

Using a Ball Mill with capacity of 1 to 30 ton/h as cost model based on CHEMCAD 6,

Model Cost = $ 92,100 for 2014

2014 CEPCI = 576.1

2017 CEPCI = 553.1

Equipment Cost = Model Cost (current cost index/previous cost index)

Equipment Cost = 92,100 (553.1/576.1)

Equipment Cost = $ 88,423.0342

Table 4.2 Detailed Summary of Estimation of Equipment Cost

Equipment Code Type Pressure Power Area (m2) No. of Volume Height (m) Diameter (m) Material of Equipment Cost
(barg) (kW) Spares (m3) Construction ($)
Compressor C-101 Rotary - 18 - - - - - Carbon Steel 33200
Conveyor CV-
Screw - - 4.27 - - - - Carbon Steel 9920
101
Conveyor CV-
Screw - - 2.74 - - - - Carbon Steel 8030
102
Exchanger Floating
E-101 2.533 - 122.64 - - - - Carbon Steel 38700
Head
Exchanger Floating
E-102 2.533 - 13.84 - - - - Carbon Steel 26200
Head
Exchanger Floating
E-103 2.533 - 17.8 - - - - Carbon Steel 25600
Head
Pump P-101 Centrifugal 1.01 2.31 - 1 - - - Carbon Steel 7480
Pump P-102 Centrifugal 1.01 1.25 - 1 - - - Carbon Steel 6930
Pump P-103 Centrifugal 1.01 0.64 - 1 - - - Carbon Steel 6830
Pump P-104 Centrifugal 20 0.53 - 1 - - - Carbon Steel 6830
Pump P-105 Centrifugal 1.77 0.56 - 1 - - - Carbon Steel 6830
Pump P-106 Centrifugal 1.77 0.44 - 1 - - - Carbon Steel 6830
Reactor R-101 Autoclave 20 - - - 119 10.5749 3.535 Carbon Steel 909,000
Reactor Jacketed
R-102 1.01 - - - 33.6 5.5679 2.784 Carbon Steel 115000
Agitated
Reactor R-103 Fermenter 1.01 - - - 11.899 3.221 2.1474 Carbon Steel 66200
Tower (12) Sieve
T-101 2.533 - - - - 14.2 0.707 Carbon Steel 27200
Tray
Tower (20) Sieve
T-102 2.533 - - - - 10 0.65 Carbon Steel 28800
Tray
Tower (45) Sieve
T-103 2.533 - - - - 18.06 0.903 Carbon Steel 69900
Tray
Tower Vertical
T-104 2.533 - - - - 4.88 1.83 Carbon Steel 18600
Vessel
Tower Vertical
T-105 2.533 - - - - 4.88 1.83 Carbon Steel 18600
Vessel
*Miller M-101 Roller Mill - - - - - Carbon Steel 88423.0342

SUB-TOTAL 1525103.034
Freight Charge
152510.3034
(10%)
TOTAL ($) 1677613.338
TOTAL
83,880,666.88
(PHP)
II. Estimation of Working Capital

A large sum of money must be supplied to purchase and install the necessary machinery

and equipment, before an industrial plant can be put into operation. Land and service facilities

must be obtained and the plant must be established with complete piping, controls and services.

Furthermore, it is necessary to have money available for the payment of expenses involved in the

operation of the plant.

A. Fixed Capital Investment

Fixed Capital Investment is defined as the total cost of processing installations, buildings,

auxiliary services and engineering involved in the establishment of a new plant. About 85 to

90 percent of the total capital is comprised of fixed capital. It is categorized into manufacturing

fixed capital investment also known as direct costs and nonmanufacturing fixed capital

investment also known as indirect costs.

The cost estimation of the Fixed Capital Investment is based from the book “Plant Design

and Economics for Chemical Engineer” by Peters, Timmerhaus, and West (2003). This is

calculated by selecting the appropriate percent Fixed Capital Investment (%FCI) shown in

Table 4.2. The estimated costs were verified using the % purchase equipment cost listed in

Table 6-18 of the same book. The obtained value of FCI is 451,277,987.8 PHP.
 Table 4.3 Breakdown of Direct Costs and Indirect Costs

COMPONENT Range of FCI, % Selected FCI, % Normalized FCI, % Estimated Cost (PHP) Calculated FCI, %

Direct Costs
Purchased Equipment 15-40 25 18.79699248 83880666.88 18.58736059
Purchased Equipment Installation 6-14 10 7.518796992 33552266.75 7.434944238
Instrumentation & Controls 2-12 8 6.015037594 26841813.4 5.94795539
Piping 4-17 10 7.518796992 33552266.75 7.434944238
Electrical Systems 2-10 8 6.015037594 26841813.4 5.94795539
Buildings (including services) 2-18 15 11.27819549 50328400.13 11.15241636
Yard Improvements 2-5 3 2.255639098 10065680.03 2.230483271
Service Facilities 8-30 20 15.03759398 67104533.5 14.86988848
Land 1-2 1 0.751879699 8388066.688 1.858736059
Indirect Costs
Engineering & Supervision 4-20 10 7.518796992 33552266.75 7.434944238
Construction Expenses 4-17 8 6.015037594 26841813.4 5.94795539
Legal Expenses 1-3 2 1.503759398 6710453.35 1.486988848
Contractor's Fee 2-6 26 4.511278195 20131360.05 4.460966543
Contingency 5-15 7 5.263157895 23486586.73 5.204460967
TOTAL 133 100 451277987.8 100
Checking if the estimated costs are within the percentage range given in the book “Plant Design and Economics for Chemical Engineers” by Peters,

Timmerhaus, & West (2003):

Table 4.4 Calculated Percentages of Components and Items

COMPONENT Estimated Cost (PHP) Range Calculated Percentage, %

Direct Costs 340555507.5 65-85% of fixed capital investment
Purchased Equipment 83880666.88 15-40% of fixed capital investment 18.58736059
Purchased Equipment
33552266.75 25-55% of the purchased equipment cost 40
Installation
Instrumentation & Controls 26841813.4 8-50% of purchased equipment cost 32
Piping 33552266.75 10-40% of purchased equipment cost 40
Electrical Systems 26841813.4 10-80% of purchased equipment cost 32
Buildings (including services) 50328400.13 10-70% of purchased equipment cost 60
Yard Improvements and Service 77170213.53
40-100% of purchased equipment cost 92
Facilities
Land 8388066.688 1-2% of fixed capital investment 1.858736059
Indirect Costs 110722480.3 15-35% of fixed capital investment
Engineering & Supervision 33552266.75 5-30% of direct costs 9.852216749
Construction Expenses &
46973173.45 10 -20% of fixed capital investment 10.40892193
Contractor’s Fee
Legal Expenses 6710453.35 1-3% of fixed capital investment 1.486988848
Contingency 23486586.73 5-15% of fixed capital investment 5.204460967
Checking if the Direct Costs and Indirect Costs are within the allowable range:

Direct Costs = material and labor involved in actual installation of complete facility (65-85% of

fixed capital investment).

Direct Costs = Equipment + Installation + Instrument + Piping + Electrical + Buildings +

Service Facilities + Yard Improvements + Land

Total Direct Cost = 340555507.5

340555507 5
% Direct Cost   100%
451277987.8
% Direct Cost  75.464%

This is within the allowable range which is 65-85% of FCI.

Indirect Costs = expenses which are not directly involved with material and labor of actual

installation of complete facility (15-35% of fixed capital investment).

Indirect Costs = Engineering and Supervision + Legal Expenses + Construction Expenses +

Contractor's Fee + Contingency

Total Indirect Cost = 110722480.3

110722480.3
% Indirect Cost   100%
451277987.8
% Indirect Cost  24.535

This is within the allowable range which is 15-35% of FCI.

B. Total Capital Investment

The total capital investment is the sum of the fixed capital investment and of the working

capital. In this report, the Working Capital is calculated as 15% of the Total Capital

Investment.

Total Capital Investment = Fixed Capital Investment + Working Capital

Total Capital Investment = 451277987.8 PHP  0.15 Total Capital Investment

(1 - 0.15) Total Capital Investment = 451277987.8 PHP

Total Capital Investment  530915279.8 PHP

C. Working Capital

The Working Capital required to start up the plant and finance ordinarily amounts to

the production cost before revenues from the process start. This consists of the total amount

of money invested in raw materials and supplies carried in stock, finished products in stock

and semi-finished products in the process of being manufactured, accounts receivable, cash

kept on hand for monthly payment of operating expenses such as salaries, wages and raw

material purchases, accounts payable and taxes payable as well.

Total Capital Investment  Fixed Capital Investment  Working Capital

Working Capital  Total Capital Investment - Fixed Capital Investment

Working Capital  530915279.8 - 451277987.8

Working Capital  79637291.97

III. Estimation of Production Cost

The cost effectiveness of a process depends on the production costs of a product.

Production costs are the costs incurred in manufacturing a good or providing a service. It includes

a variety of expenses including, but not limited to, labor, raw materials, consumable manufacturing

supplies and general overhead. Additionally, any taxes levied by the government or royalties owed

by natural resource extracting companies are also considered production costs.

The cost of production is directly related to the manufacturing cost or the costs of both

the materials and the labor required in the creation of a product. Indirect costs include overhead

such as rent, administrative salaries or utility expenses. Generally, the total production cost is the

sum of the manufacturing costs and the general expenses.

In the estimation of the production costs presented in this chapter, an annual cost basis

was used as this method offers the convenience in considering equipment operating factor and

infrequently occurring large expenses. It also permits a more rapid calculation of the operating

costs and smoothens out seasonal variations within the operation of the plant.

A. Manufacturing Costs

Manufacturing costs may be classified under three sub-categories: direct cost, fixed charges

and overhead-plant costs.

1. Direct Costs

In manufacturing industries, the cost of raw materials and labor cost are primarily

classified as direct costs. These are directly associated to the manufacturing process and

may include other expenses such as the costs of utilities and repair and maintenance costs.

The amount of the raw materials which must be supplied per unit of time or per unit

of product can be determined from process material balances. Direct price quotations from

prospective suppliers are preferable to published market prices. For preliminary cost

analyses, market prices are often used for estimating raw-material costs. In chemical plants,

raw-material costs are usually in the range of 10 to 50 percent of the total product cost.
 The cost of raw materials was estimated on an annual basis with the adapted price of

corn stover (University of Missouri) as $45/ton or approximately Php2250.00/ton, yeast

as 50,000 php/ton (Alibaba), and cellulase as 100,000php/ton (Alibaba).

One method of estimating labor requirements as a function of plant capacity is based

on adding up the various principal processing steps on the flow sheet (as proposed by HE

Wessel). In this method, a process step and the number of employee-hours per production

per step are specified. The number of hours per step is multiplied by the total number of

processing steps to give the total employee hours per production

Three principal processing steps were considered and the labor cost was estimated on

the basis of 50 - employee hour in a day for each processing step and the plant runs

throughout the 365 days of a year. An hourly wage rate of $33.67 (Php1683.50) for skilled

workers was used.

A certain amount of direct supervisory is always required for a manufacturing

operation. The extent of necessity for this type of labor depends on the total amount of

operating labor, complexity of the operation, and product quality standards. The cost for

direct supervisory was estimated at 10 percent of the operating labor cost.

Utility costs for ordinary chemical processes amount to 10 to 20 percent of the total

product cost. The cost of utilities such as process water, steam, and electricity was

estimated as 10 percent of the total production cost.

To keep the plant in efficient operating condition, repair and maintenance are

necessary and the expenses for this include the cost for labor, materials, and supervision.

For complicated processes where severe corrosion operating conditions or extensive

instrumentation are primary concern, annual maintenance cost is estimated at 7-11 percent

of the FCI, about 4-6 percent of which is for the materials needed and 3-5 percent for the

labor.
 Annual costs for equipment maintenance were estimated at 7 percent of the estimated

cost of the purchased set of equipment. This estimation is reasonable enough as repair and

maintenance expenses are usually estimated ranging from 2 - 10 percent of the costs of

equipment in processing industries. Costs of supplies during operations were taken as 10

percent of the costs of repair and maintenance.

2. Fixed Charges

This classification covers the expenses that are practically constant from year to year

and not greatly influenced by the rate of production such as depreciation, property taxes,

insurance, and rent.

The tax and insurance rates were estimated at 1% and 0.4% of the fixed capital

investment (FCI), respectively. No cost for rent was considered.

3. Overhead Costs

The expenditures required for the routine services of a complete plant functioning as

one unit are included in plant & overhead costs. The direct costs and fixed charges of non-

manufacturing machinery, equipment, and buildings necessary for many of the general

plant services are part of the plant-overhead costs.

Similar to the fixed charges, these costs do not vary widely with changes in the

production rate. It may include costs for hospital and medical services; general plant

maintenance and overhead; safety services; payroll overhead including pensions, vacation

allowances, social security, and life insurance; packaging, restaurant and recreation

facilities, salvage services, control laboratories, property protection, plant superintendence,

warehouse and storage facilities, and special employee benefits.

 The plant-overhead cost for chemical plants is about 50 to 70 percent of the total

expense for operating labor, supervision, and maintenance. A rough estimate of 50 percent

was considered.

B. General Expenses

Besides the manufacturing costs, other general expenses are involved in any company’s

operations. These general expenses may be classified as (1) administrative expenses, (2)

distribution and marketing expenses, and (3) research and development expenses.

1. Administrative Costs

The expenses connected with top-management or administrative activities cannot be

charged directly to manufacturing costs; however, it is necessary to include the

administrative costs if the economic analysis is to be complete. These costs may vary

markedly from plant to plant and depend somewhat on whether the plant under

consideration is a new one or an addition to an old plant. As a quick estimate, the

administrative costs may be approximated as 20 to 30 percent of the operating labor. As

such, 20% estimate was used.

2. Distribution and Marketing Costs

This classification of costs varies widely for different types of plants depending on the

particular material being produced, other products sold by the company, plant location,

and company policies. Typically, for most chemical plants these costs range from 2 to 20

percent of the total product cost. The higher figure usually applies to a new product or to

one sold in small quantities to a large number of customers while lower figures apply to

large-volume products, such as bulk chemicals.

3. Research and Development Costs

Emphasis on research and development paves the creation of new methods and

products in chemical industries. In the chemical industry, costs for research and

development amount to about 2 to 5 percent of the total product cost.

Table 4.5 Summary of Product Cost Estimation

Cost Items Basis of Computation Annual Cost Estimate

(Php)
I. Manufacturing Cost 523908793.3
A. Direct Production Costs 463960684.4
Raw Materials 2250 php/ton corn stover
50,000 php/ton yeast 285266023.2
100,000 php/ton cellulase
Operating Labor Php1683.5/hr (skilled) 92171625
Supervisory 10% of Operating Labor 9217162.5
Utilities 10% of TPC 61629899.81
Maintenance and Repairs 7% of Purchased Equipment
5871646.682
Cost
Operating Supplies 10% of Maintenance and
587164.6682
Repairs Cost
Laboratory Charges 10% of Operating Labor 9217162.5
B. Fixed Charges 6317891.829
Local taxes 1% of FCI 4512779.878
Insurance 0.4% of FCI 1805111.951
C. Plant Overhead Costs 50% of Total Labor Cost 53630217.09
II. General expenses 61575254.87
Administrative Costs 20% of Operating Labor 18434325
Distribution and Marketing
2% of TPC 12325979.96
Costs
Research and Development
5% of TPC 30814949.9
Costs
TOTAL PRODUCT COST 616298998.1
III. Feasibility Analysis

This feasibility analysis assesses the practicality of the proposed plant design. This can be

done by comparing the current market price of bioethanol to the proposed price of bioethanol

from this report, calculating the return of investment, profitability, and payback period. Through

the following factors enumerated, this plant design report may be plausible and suitable for

operation.

A. Profitability

Currently, according to ICIS, a market information provider, the fuel-grade ethanol price

in Southeast Asian market is $518 - $522 per cubic meter or approximately P25,900 - P26,100

per cubic meter in Philippine currency. With this information, this design report must have a

lower bioethanol price or equivalent to the current market price to compete in the market.

Total Product Cost

Ethanol Price =
Annual Plant Capacity

P 616298998.1/yr
Ethanol Price 
100000 * 365 kg/yr
( )
785.1kg./m3

Ethanol Price  P13,256.33818/m3

The calculated ethanol price is almost half the market price which means the ethanol

produced could compete in the market along with experienced ethanol producers. Thus, to

maximize the plant profit, the selling price of ethanol produced corn stover would be

P23,000/m3.
 Total Income  (Annual Plant Capacity)(Selling Price)

23,000/m3
Total Income  (365)(100,000 kg/day)( )
785.1kg/m3

Total Income  P1,069,290,536/yr

The total income accounts for the total money received annually by the company from

selling all the ethanol produced during operation.

Gross Income  Total Income - Total Product Cost

Gross Income  1,069,290,536 - 616,298,998.1

Gross Income  P452,991,538.1

Consequently, the gross income accounts for the total money received annually by the

company from selling all the ethanol produced during operation and deducting total cost of

production. Hence, considering a 35% tax rate and subtracting it from the gross income,

Annual Net Profit  (1 - Tax Rate)(Gross Income)

Annual Net Profit  (1 - 0.35)(452,991,538.1)

Annual Net Profit  P294,444,499.8

Therefore, the annual plant profit is calculated as P294,444,499.8. It can be inferred from

this that a fast payback period can be expected when compared to the capital investment for

the plant.

B. Payback Period

Fixed Capital Investment

Payback Period 
Annual Net Profit  Depreciation

However, to compute for the time that the capital invested is returned or more commonly

known as payback period, the depreciation which accounts for the allocated cost of tangible
 assets over its useful life must be known. The cost of tangible assets is the direct cost from

Table 4.4 less the non-depreciable assets, land and equipment installation cost.

Tangible Assets Cost  Direct Cost - Land Cost - Equipment Installation Cost

Tangible Assets Cost  340555507.5 - 33552266.75 - 8388066.688

Tangible Assets Cost  P298,615,174.1

Using Straight-Line Depreciation Method,

Recovery Period of Chemical Plant = 9.5 yrs

Tangible Assets
Depreciation 
Recovery Period

298,615,174.1
Depreciation 
9.5
Depreciation  P31,433,176.22

451277987.8
Payback Period 
294444499.8  31433176.22
PaybackPeriod  1.38 yrs

Using Modified Accelerated Cost Recovery System (MACRS),

Recovery Period of Chemical Plant = 5 yrs

Table 4.6 Depreciation Using MACRS

Year Unadjusted Depreciation Depreciation Adjusted

Basis Rate Basis
0 298615174.1 20 59723034.82 238892139.3
1 298615174.1 32 95556855.71 143335283.6
2 298615174.1 19.2 57334113.43 86001170.14
3 298615174.1 11.52 34400468.06 51600702.08
4 298615174.1 11.52 34400468.06 17200234.03
5 298615174.1 5.76 17200234.03 0
Total Depreciation 298615174.1
Average Annual 49769195.68
Depreciation
 451277987.8
Payback Period 
294444499.8  49769195.68
PaybackPeriod  1.31 yrs

Since, the payback periods for both the depreciation methods are close, with MACRS

faster by just a factor 0.07 years to Straight-Line method, the design engineer can choose

either of the two. However, given the economical setup of Philippines, it is more preferable

to use straight-line method. Therefore, for this design report, a payback period of 1.38

years is chosen.

C. Return of Investment

Return of investment is an economical tool used for financial decisions. It measures the

benefits obtained from investing of some resource. Additionally, this is a profitability ratio to

determine the profit of an investment as a percentage of its original cost.

Annual Net Profit

%ROI  (100)
Total Capital Investment

294444499.8
%ROI  (100)
530915279.8
%ROI  55.46

From the calculated ROI, it can be concluded that this report is deemed attractive for

operation.
 Life of project earnings

2750
Land, salvage, and working
capital recovery

2250

1750 Cumulative cash position = net profit

after taxes + depreciation - total capital
investment

1250

Construction 750
period
Total capital
investment
(including land) Annual net profit
Start of
construction 250 after taxes
(constant)

-3 capital
Fixed -2 -1 0 1 2 3 4 5 6 7 8
investment -250
(depreciable)

Annual depreciation Book value of investment

Zero-time line charge (straight line) (with 9.5 straight-line deprec
Working capital
-750

Figure 4.1 Cumulative Cash Flow Position Diagram