Page 179 - Plant design and economics for chemical engineers

COST ESTIMATION 153

Life of project eorn~ngs
A
Land, salvage, ond
Cumulotwe working copltal M
ccsh WCO”ery
posItlo”.
collars (+) 2Mt c umulotwe cash posltlon = (net proflt after
Net proflt
over total
llte of
project

Book value of investment
(wth straight-line deprectotlon)

Investment Zero-
time
Dollars (-1 hne
FIGURE 6-2
Graph of cumulative cash position showing effects of cash flow with time for an industrial operation
neglecting time value of money.

full life cycle for an industrial process. The zero point on the abscissa represents
that time at which the plant has been completely constructed and is ready for
operation. The total capital investment at the zero point in time includes land
value, fixed-capital and auxiliaries investment, and working capital. The cash
position is negative by an amount equivalent to the total capital investment at
zero time, but profits in the ideal situation come in from the operation as soon
as time is positive. Cash flow to the company, in the form of net profits after
taxes and depreciation charges, starts to accumulate and gradually pays off the
full capital investment. For the conditions shown in Fig. 6-2, the full capital
investment is paid off in five years. After that time, profits accumulate on the
positive side of the cumulative cash position until the end of the project life at
which time the project theoretically is shut down and the operation ceases. At
that time, the working capital is still available, and it is assumed that the land
can still be sold at its original value. Thus, the final result of the cumulative cash
position is a net profit over the total life of the project, or a cash flow into the
company capital sink (in addition to the depreciation cash flow for investment
payoff) over the ten-year period, as shown in the upper right-hand bracket in
Fig. 6-2.
The relationships presented in Fig. 6-2 are very important for the under-
standing of the factors to be considered in cost estimation. To put emphasis on