Page 312 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

This cost considers both the capital cost of equipment and yearly operating cost (YOC) needed to
compare alternatives. The extra terms in Equation (10.2) represent the effect of taking the yearly cash
flows for operating costs from the residual, R.

By using Equation (10.1) or (10.2), we correctly account for the different operating lives of the equipment
by calculating an effective capitalized cost for the equipment and operating cost. Example 10.7 illustrates
the use of these equations.

Example 10.7

During the design of a new project, we are faced with a decision regarding which type of pump should be
used for a corrosive service. Our options are as follows.

Assume a discount rate of 8% p.a.

Using Equation (10.2) for the carbon steel pump,

For the stainless steel pump,

The carbon steel pump is recommended because it has the lower capitalized cost.

In Example 10.7, the stainless steel pump costs twice as much as the carbon steel pump and, because of
its superior resistance to corrosion, will last nearly twice as long. In addition, the operating cost for the
stainless steel pump is lower due to lower maintenance costs. In spite of these advantages, the carbon
steel pump was still judged to offer a cost advantage.

Equivalent Annual Operating Cost (EAOC) Method. In the previous method, we lumped both capital
cost and yearly operating costs into a single cash fund or equivalent cash amount. An alternative method is
to amortize (spread out) the capital cost of the equipment over the operating life to establish a yearly
cost. This is added to the operating cost to yield the EAOC.