Page 255 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

Chapter 9 Engineering Economic Analysis

The goal of any manufacturing company is to make money. This is realized by producing products with a
high market value from raw materials with a low market value. The companies in the chemical process
industry produce high-value chemicals from low-value raw materials.

In the previous chapters, a process flow diagram (Chapter 1), an estimate of the capital cost (Chapter 7),
and an estimate of operating costs (Chapter 8) were provided for the production of benzene. From this
material, an economic evaluation can be carried out to determine

1. Whether the process generates money
2. Whether the process is attractive compared with other processes (such as those for the
production of ethylbenzene, ethylene oxide, formalin, and so on, given in Appendix B)

In the next two chapters, the necessary background to perform this economic analysis is provided.

The principles of economic analysis are covered in this chapter. The material presented covers all of the
major topics required for completion of the Fundamentals of Engineering (FE) examination. This is the

first requirement for becoming a registered professional engineer in the United States.

It is important for you, the graduating student, to understand the principles presented in this chapter at the
beginning of your professional career in order to manage your money skillfully. As a result, we have

elected to integrate discussions and examples of personal money management throughout the chapter.

The evaluation of profitability and comparison of alternatives for proposed projects are covered in
Chapter 10.

9.1 Investments and the Time Value of Money

The ability to profit from investing money is the key to our economic system. In this text, we introduce
investment in terms of personal financing and then apply the concepts to chemical process economics.

There are various ways to distribute one’s personal income. The first priority is to maintain a basic (no-

frills) standard of living. This includes necessary food, clothing, housing, transportation, and expenses
such as taxes imposed by the government. The remaining money, termed discretionary money, can then be
distributed. It is wise to distribute this money in a manner that will realize both your short-term and long-
term goals.

Generally, there are two classifications for spending discretionary money.
1. Consume money as received. This provides immediate personal gratification and/or satisfaction.
We experience this use for money early in life.
2. Retain money for future consumption. This is money put aside to meet future needs. These may
result from hard-to-predict causes such as sickness and job layoffs or from a more predictable
need for long-term retirement income. It is unlikely that you have considered these types of