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CHEMICAL ENGINEERING
sells for £35/t. A process modification has been devised that will increase the yield to
75 per cent. The additional investment required is £35,000, and the additional operating
costs are negligible. Is the modification worth making?
Solution
There are two ways of looking at the earnings to be gained from the modification:
1. If the additional production given by the yield increase can be sold at the current
price, the earnings on each additional ton of production will equal the sales price
less the raw material cost.
2. If the additional production cannot be readily sold, the modification results in a
reduction in raw material requirements, rather than increased sales, and the earnings
(savings) are from the reduction in annual raw material costs.
The second way gives the lowest figures and is the safest basis for making the evaluation.
At 10,000 t/y production
10,000
Raw material requirements at 70 per cent yield D D 14,286
0.7
10,000
at 75 per cent yield D D 13,333
0.75
savings 953 t/y

Cost savings, at £10/t, D 953 ð 10 D £9530 per year
9530
ROR D ð 100 D 27 per cent
35,000
Pay-back time (as the annual savings are constant, the pay-back time will be the reciprocal
of the ROR)
100
D D 3.7 years
27
On these figures the modification would be considered worthwhile.

Example 6.6
It is proposed to build a plant to produce a new product. The estimated investment required
is 12.5 million pounds and the timing of the investment will be:

year 1 1.0 million (design costs)
year 2 5.0 million (construction costs)
year 3 5.0 million ” ”
year 4 1.5 million (working capital)

The plant will start up in year 4.
The forecast sales price, sales volume, and raw material costs are shown in Table 6.8.