Page 298 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

For each of these bases, discounted or nondiscounted techniques may be considered. The nondiscounted
techniques do not take into account the time value of money and are not recommended for evaluating new,
large projects. Traditionally, however, such methods have been and are still used to evaluate smaller
projects, such as process improvement schemes. Examples of both types of methods are presented for all
the three bases.

10.2.1 Nondiscounted Profitability Criteria

Four nondiscounted profitability criteria are illustrated in Figure 10.2. The graphical interpretation of
these profitability criteria is shown in the figure. Each of the four criteria is explained below.

Figure 10.2 Illustration of Nondiscounted Profitability Criteria

Time Criterion. The term used for this criterion is the payback period (PBP), also known by a variety
of other names, such as payout period, payoff period, and cash recovery period. The payback period is
defined as follows:
PBP = Time required, after start-up, to recover the fixed capital investment,
FCI , for the project
L

The payback period is shown as a length of time on Figure 10.2. Clearly, the shorter the payback period,
the more profitable the project.

Cash Criterion. The criterion used here is the cumulative cash position (CCP), which is simply the
worth of the project at the end of its life. For criteria using cash or monetary value, it is difficult to
compare projects with dissimilar fixed capital investments, and sometimes it is more useful to use the
cumulative cash ratio (CCR) which is defined as