Page 475 - Corrosion Engineering Principles and Practice

442 C h a p t e r 1 1 M a t e r i a l s S e l e c t i o n , Te s t i n g , a n d D e s i g n C o n s i d e r a t i o n s 443

calculations of net present worth. Factors that need to be considered
in calculating net present worth include
1. Initial cost
2. Best estimate of expected life
3. Length of typical shutdown for emergency repair
4. Cost of planned maintenance during scheduled shutdowns
5. Effect of failure on total plant operation
When proposals are made with recommendations based on
economic calculations, those controlling the purse strings are more
inclined to listen. Calculated options provide them with an objective
basis on which to make a decision regarding how and where to spend
the money available, and thus add more credibility to a proposal.
The generalized economic analysis expression in Eq. (11.1) is
particularly adapted to corrosion engineering problems. Given the
numerous uncertainties associated with most corrosion problems this
equation can provide fairly good estimates of prevention and control
alternatives. This equation takes into account the influence of taxes,
straight-line depreciation, operating expenses, and salvage value in
the calculation of present worth and annual cost [11].

t P ( − S)   P   P   P 
PW = −P +   n   i , %, n   − (1 − t X)   A , , %,n + S   F , %,n (11.1)
)(
i
i




  A
where A represents the annual end-of-period cash flow
F represents a future sum of money
i% represents the interest rate
n is the number of years
PW is the present worth referred also as Net Present Value (NPV)
P is the cost of the system at time 0
S represents salvage value
t is the tax rate expressed as a decimal
X represents the operating expenses
1. First term (−P): This term represents the initial project expense,
at time zero. As an expense, it is assigned a negative value.
There is no need to translate this value to a future value in
time, as the PW approach discounts all money values to the
present (time zero).
2. Second term [(t(P − S)/n)(P/A, i%, n)]: The second term in
this equation describes the depreciation of a system. The
portion enclosed in braces expresses the annual amount
of tax credit permitted. The portion in parentheses translates
these as equal amounts back to time zero by converting
them to PW.