Page 339 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

If the profit margin is negative, the process will not be profitable. This is because no capital cost, utility
costs, and other ancillary operating costs have been taken into account. A positive profit margin does not
guarantee that the process will be profitable but does suggest that further investigation may be warranted.
Therefore, the profit margin is a useful, but limited, tool for the initial screening of process alternatives.
This is illustrated in Example 10.17.

Example 10.17

Consider the maleic anhydride process shown in Appendix B.5. Estimate the profit margin for this
process using the costs of raw materials and products from Table 8.4.
From Tables 8.4 and B.4 the following flowrates and costs are found:
Cost of benzene = $0.657/kg
Cost of maleic anhydride = $1.543/kg
Feed rate of benzene to process (Stream 1, Figure B.4.1) = 3304 kg/h
Product rate of maleic anhydride (Stream 13, Figure B.4.1) = (24.8)(98.058) = 2432 kg/h
Profit Margin = (2432)(1.543) – (3304)(0.657) = $1581.6/h or $1581.6/(2432) = $0.650/kg of
maleic anhydride

Clearly, from an analysis of the profit margin, further investigation of the maleic anhydride process is
warranted.

10.9 Summary

In this chapter, the basics of profitability analysis for projects involving large capital expenditures were
covered. The concepts of nondiscounted and discounted profitability criteria were introduced, as were
the three bases for these criteria: time, money, and interest rate.

How to choose the economically optimum piece of equipment among a group of alternatives using the
capitalized cost, equivalent annual operating cost, and the common denominator methods was
demonstrated.

The concept of incremental economic analysis was introduced and applied to an example involving large
capital budgets and also to a retrofit project. It was shown that both the net present value (NPV) and
equivalent annual operating cost (EAOC) methods were particularly useful when comparing alternatives
using discounted cash flows.

Finally, the concept of assigning probabilities to variables in order to quantify risk was discussed. The
Monte-Carlo technique was introduced, and its application to simulate the cumulative distribution of net
present values of a project was described. The interpretation of results from this technique was presented.

Finally, the simulation of risk and the analysis of data using the CAPCOST package was illustrated by an
example.

References