Page 180 - Plant design and economics for chemical engineers

154 PLANT DESIGN AND ECONOMICS FOR CHEMICAL ENGINEERS

the basic nature of the role of cash flow, including depreciation charges, Fig. 6-2
has been simplified considerably by neglecting the time value of money and
using straight-line relationships of constant annual profit and constant annual
depreciation. In the chapters to follow, more complex cases will be considered
in detail.

FACTORS AFFECTING INVESTMENT AND
PRODUCTION COSTS

When a chemical engineer determines costs for any type of commercial process,
these costs should be of sufficient accuracy to provide reliable decisions. To
accomplish this, the engineer must have a complete understanding of the many
factors that can affect costs. For example, many companies have reciprocal
arrangements with other concerns whereby certain raw materials or types of
equipment may be purchased at prices lower than the prevailing market prices.
Therefore, if the chemical engineer bases the cost of the raw materials for the
process on regular market prices, the result may be that the process is uneco-
nomical. If the engineer had based the estimate on the actual prices the
company would have to pay for the raw materials, the economic picture might
have been altered completely. Thus the engineer must keep up-to-date on price
fluctuations, company policies, governmental regulations, and other factors
affecting costs.

Sources of Equipment

One of the major costs involved in any chemical process is for the equipment. In
many cases, standard types of tanks, reactors, or other equipment are used, and
a substantial reduction in cost can be made by employing idle equipment or by
purchasing second-hand equipment. If new equipment must be bought, several
independent quotations should be obtained from different manufacturers. When
the specifications are given to the manufacturers, the chances for a low cost
estimate are increased if the engineer does not place overly strict limitations on
the design.

Price Fluctuations
In our modern economic society, prices may vary widely from one period to
another, and this factor must be considered when the costs for an industrial
process are determined. It would obviously be ridiculous to assume that plant
operators or supervisors could be hired today at the same wage rate as in 1975.
The same statement applies to comparing prices of equipment purchased at
different times. The chemical engineer, therefore, must keep up-to-date on
price and wage fluctuations. One of the most complete sources of information
on existing price conditions is the Month& Labor Review published by the U.S.
Bureau of Labor Statistics. This publication gives up-to-date information on
present prices and wages for different types of industries.