Professional Documents
Culture Documents
i
k
i
pvi
ICIn
ICIn
ICIn
) 1 ( +
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Industries
April 1991
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The total present value for ICIn (ICIn
pv
) is equal to the summation over all i of ICIn
pvi
. The PV for all
interim capital investments (ICIT
pv
) is equal to the summation over all n of ICIn
pv
.
PV OF INTERIM CAPITAL INVESTMENT-RELATED INCOME TAX
The present value of the income taxes generated by interim capital investment cash flows is accounted
for by the depreciation streams.
PV OF O&M
The present value of an O&M expense occurring in year i is calculated as:
(Equation 13)
where O&Mn
pvi
is the present value of O&Mn
i
, O&Mn
k
is the discount rate for O&M category n, and
O&Mn
i
was defined in Equation 3.
The total present value for O&Mn (O&Mn
pv
) is equal to the summation over all i of O&Mn
pv
i. The PV for
all O&M expenses (O&MT
pv
) is equal to the summation over all n of O&Mn
pv
.
PV OF O&M-RELATED INCOME TAX
The present value of the income taxes generated by O&Mn (O&Mn
pvt
) is calculated as:
(Equation 14)
where O&Mn
pv
was defined above and itf was defined in Equation 9.
The negative sign indicates that O&M expenses generate income tax savings. The PV for all income
taxes generated by O&M expenses (O&MT
pvt
) is equal to the summation over all n of O&Mn
pvt
.
PV OF REVENUE
The present value of a revenue occurring in year i is calculated as:
(Equation 15)
where Rn
pvi
is the present value of Rn
i
, Rn
k
is the discount rate for revenue category n, and Rn
i
was
defined in Equation 4.
The total present value for Rn (Rn
pv
) is equal to the summation over all i of Rn
pvi
. The PV for revenues
(RT
pv
) is equal to the summation over all n of Rn
pv
.
PV OF REVENUE-RELATED INCOME TAX
i
k
i
pvi
Mn O
Mn O
Mn O
) & 1 (
&
&
+
itf Mn O Mn O
pv pvt
& &
i
k
i
pvi
Rn
Rn
Rn
) 1 ( +
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April 1991
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The present value of the income taxes generated by Rn (Rn
pvt
) is calculated as:
(Equation 16)
where Rn
pv
was defined above, and itf was defined in Equation 9.
The positive sign indicates that revenues generate income tax payments. The PV for all income taxes
generated by revenues (RT
pvt
) is equal to the summation over all n of Rn
pvt
.
PV OF DEPRECIATION
The present value of depreciation occurring in year i is calculated as:
(Equation 17)
where Dn
pvi
is the present value of Dn
i
, Dn
k
is the discount rate for depreciation, and Dn
i
was defined in
Equation 5.
The total present value for Dn (Dn
pv
) is equal to the summation over all i of Dn
pvi
. The PV for all
depreciation (DT
pv
) is equal to the summation over all n of Dn
pv
.
PV OF DEPRECIATION-RELATED INCOME TAX
The present value of the income taxes generated by Dn (Dn
pvt
) is calculated as:
(Equation 18)
where Dn
pv
was defined above, and itf was defined in Equation 9.
The negative sign indicates that depreciation expenses generate income tax savings. The PV for all
income taxes generated by depreciation (DT
pvt
) is equal to the summation over all n of Dn
pvt
.
PV OF SALVAGE VALUE
The present value of salvage value occurring in year i is calculated as:
(Equation 19)
itf R Rn
npv pvt
+
( )
i
k
i
pvi
Dn
Dn
Dn
+
1
itf Dn Dn
pv pvt
( )
i
k
i
pvi
SCIT
SCIT
SCIT
+
1
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Conducting Technical and Economic Evaluations As Applied for the Process and Utility
Industries
April 1991
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where SCIT
pvi
is the present value of SCIT
i
, SCIT
k
is the discount rate for salvage value, and SCIT
i
was
defined previously.
PV OF SALVAGE VALUE-RELATED INCOME TAX
The present value of the income taxes generated by salvage value (SCIT
pvt
) is calculated as:
(Equation 20)
where SCIT
pv
is SCIT
pvi
(all salvage occurs in the same year), and itf was defined in Equation 9.
The positive sign indicates that salvage value generates income tax payments.
PV OF PROPERTY TAX
The present value of property tax occurring in year i (PT
pvi
) is calculated as:
(Equation 21)
where PT
pvi
is the present value of PT
i
, PT
k
is the discount rate for property tax value, and PT
i
was defined
in Equation 7.
The total present value for all property tax payments (PT
pv
) is equal to the summation over all i of PT
pvi
.
PV OF PROPERTY TAX-RELATED INCOME TAX
The present value of the income taxes generated by property taxes (PT
pvt
) is calculated as:
(Equation 22)
where PT
pv
was defined above, and itf was defined in Equation 9.
The negative sign indicates that property tax expenses generate income tax savings.
PV OF INCOME TAXES
The present value of all income tax expenses (IT
pv
) is calculated as:
itf SCIT SCIT
pv pvt
+
( )
i
k
i
pvi
PT
PT
PT
+
1
itf PT PT
pv pvt
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April 1991
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(Equation 23)
where OMT
pvt
, RT
pvt
, DT
pvt
, SCIT
pvt
, and PT
pvt
were defined previously.
PV OF AFTER-TAX CASH FLOW
The present value of all after-tax cash flows (ATCF
pv
) is calculated as:
(Equation 24)
where RT
pv
, SCIT
pv
, O&MT
pv
, PT
pv
, IT
pv
, CIT
pv
, and ICIT
pv
were defined previously.
Measure of Merit Calculations
NET PRESENT VALUE
The net present value (NPV) of the project is equal to ATCF
pv
, described above.
PROFITABILITY RATIO
The profitability ratio is defined as the project's net present value divided by the present value of the initial
capital investments; the higher the profitability ratio, the better. The profitability ratio is calculated as:
(Equation 25)
where ATCF
pv
and CIT
pv
were defined previously.
Internal Rate of Return
The internal rate of return is equal to the discount rate that would result in a present value of zero for the
after-tax cash flows. The internal rate of return may be calculated using the Lotus @IRR function.
Payback Period
The payback period is the first year that the cumulative after-tax cash flows for the project are positive.
Discounted Payback Period
pvt pvt pvt pvt pvt pv
PT SCIT DT RT MT O IT + + + + &
( ) ( ) ( )
pv pv pv pv pv pv pv pv
ICIT CIT IT PT MT O SCIT RT ATCF + + + + &
pv
pv
CIT
ATCF
Ratio ity Profitabil
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April 1991
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The discounted payback period is the first year that the cumulative present value of the after-tax cash
flows for the project are positive.
Nominal Annualized Production Cost
The nominal annualized production cost is a constant cost in nominal dollars that, over the lifetime of the
project, would result in a present value equal to the present value of all project costs. The nominal
annualized production cost is calculated as:
(Equation 26)
where
NAPC = nominal annualized production cost, $ per unit of output
CIT
pv
= present value of initial capital costs
ICIT
pv
= present value of interim capital costs
O&MT
pv
= present value of O&M costs
PT
pv
= present value of property taxes
itf = combined state and federal income tax fraction
DT
pv
= present value of depreciation
CRF = capital recovery factor, % fraction (defined below)
PR = annual production rate (assumed constant in each year).
The CRF in the equation for NAPC is calculated as:
(Equation 27)
where k is the appropriate overall discount rate to use in these types of calculations, and L is the project's
operating life.
Real Annualized Production Cost
The real annualized production cost (RAPC) is a constant cost in real dollars that, over the lifetime of the
project, would result in a present value equal to the present value of all project costs. The real annualized
production cost is calculated as:
(Equation 28)
( ) ( ) [ ]
( ) PR itf
CRF itf DT itf PT MT O ICIT CIT
NAPC
pv pv pv pv pv
+ + +
1
1 &
L
k
k
CRF
+
) 1 ( 1
( )
( )
( )
( )
]
]
]
]
,
,
,
(
(
,
\
,
,
(
j
+
+
+
L
k
g
g
g k
CRF
NAPC
RAPC
1
1
1 1
Copyright 2003 AACE, Inc. AACE International Recommended Practices
Conducting Technical and Economic Evaluations As Applied for the Process and Utility
Industries
April 1991
54 of 62
where RAPC is the real annualized production cost in $/unit of output; g is the general inflation rate; and
NAPC, CRF, k, and L were defined previously.
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Conducting Technical and Economic Evaluations As Applied for the Process and Utility
Industries
April 1991
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APPENDIX C: TABLE C-5 -- SUGGESTED MODEL ASSUMPTIONS
KEY ASSUMPTIONS
All cash flows are expressed in nominal year dollars.
All cash flows are assumed to occur at the end of the year.
The base year for discounting cash flows is year 0. All cash flows occurring in year 0 are not
discounted (i.e., the present value equals the cash flow), with cash flows occurring in all other years
being discounted appropriately.
An effective combined income tax rate is used to cover both state and federal income taxes.
The project owner is assumed to have other income that can be shielded by tax losses. This results
in negative income tax payments being treated as positive after-tax cash flows.
ASSUMPTIONS THAT CAN BE EASILY MODIFIED BY USER
Capital costs during construction are assumed to be split equally among each of the construction
years. Otherwise, where uniform construction payout is not valid, the cash flows can be manually
entered (in nominal dollars) in each year.
Interim capital costs are assumed to take place within a single year.
Property taxes are constant throughout the life of the plant and are calculated as a fraction of the total
nominal dollar cost of the initial project capital investment.
All revenues and operating expenses will commence in year 1 and continue for the life of the project.
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APPENDIX C: TABLE C-6 -- ECONOMIC NOMENCLATURE for MODEL
APC annualized production cost ($/unit of annual output)
ATCF after tax cash flow ($)
CIn initial capital investment for one of the cost categories, measured as "overnight"
costs, i.e., costs excluding interest and escalation during construction ($)
CIT total initial capital investment, the sum of all CIn($)
CRF capital recovery factor
CT construction time (years)
Dn total investment for an initial capital investment or an interim capital investment ($)
DPF depreciation factor
DT total depreciation ($)
ICIn an interim capital investment ($)
ICIT total interim capital investment ($)
IT income tax payment ($)
L plant operating life (years)
NAPC nominal annualized production cost ($/unit of annual output)
NPV net present value ($)
O&MT total operation and maintenance expenses ($)
O&Mn an annual operation and maintenance expense ($)
PR annual production rate (units/year)
PT property tax payment ($)
RAPC real annualized production cost ($/unit of annual output)
Rn one of five revenue streams ($)
RT total revenue ($)
SCIn salvage value for CIn ($)
SCIT total salvage value ($)
TI taxable income ($)
g general inflation rate (%)
i the year i or the i th year
itf income tax rate (%)
k overall discount rate
ptf property tax rate (%)
svf salvage value fraction (%)
Subscripts
dedi deductible as an expense in year i
g escalation rate for a cash flow stream
i a cash flow stream occurring in year i
k discount rate for a cash flow stream
p reference price year for a cash flow stream
pv present value of a cash flow stream
pvi present value of a cash flow stream occurring in year i
pvt present value of income taxes generated by a cash flow stream
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APPENDIX D - Report Content: TABLE D-1 -- CHECKLIST OF REPORT REQUIREMENTS
Design
____ Plant size and basis for selecting
____ Detailed process flow block diagram and stream summaries showing rates and compositions of
all streams, temperatures, and pressures, residence or reaction time for all reactors, etc.
____ Energy flow diagram
____ Equipment list (see Appendix A for examples)
____ Deviations from design premises (Table D-3)
Capital Costs
____ Major equipment cost references
____ Equipment and utility summary (Table B-2)
____ Craft labor rates, equipment setting, concrete, steel, etc. $/work-hour
____ Productivity factor for location relative to Houston-Gulf Coast
____ Material and labor factors used if different than those in Tables B-3 and B-4 and reported in Table
D-3
____ Direct field labor average, $/work-hour
____ Fringe benefits as a % of labor costs if different than 35%
____ Percent factor used for small tools portion of Indirect Plant
____ Percent factor used for General Facilities if different than 15% of Total Process Capital
____ Percent factor used for Home Office, Overhead and Fee (contractor + client) if different than 15%
____ Contingency factor breakdown
____ Prepaid royalty factor(s) if different than 0.5% of total process capital.
____ Working capital basis if different than 2 months of total annual operating expense
____ Spare parts inventory factor if different than 0.5 of 1%
____ Initial catalyst and chemicals basis
____ Land Cost - acres required and $/acre
____ Storage time of raw materials, chemicals and fuels
Operating Costs
____ Raw material and byproduct unit costs used and source of data
____ Documentation of yields to arrive at quantities
____ Utility and chemical requirements (totals of Table B-2)
____ Purchased power costs, $/KWH
____ Fuel requirements and unit cost used
____ Chemical unit costs
____ Basis for operating labor requirements (Wessel article, experience, other)
____ Average operating labor rate used
____ Supervisory labor percent of direct labor if other than 15%
____ Maintenance labor if other than 3% of total plant cost
____ Maintenance material if other than 3% of total plant cost
____ Indirect labor if other than 75% of direct labor
____ Indirect material if other than 25% of direct labor
____ Payroll overhead same as fringe benefits under capital costs. If different than fringe benefits
and/or 35% of total labor, so specify
____ Property taxes and plant insurance, if different than 2% of total plant cost
____ Was general equation used? (See text)
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Financial Analysis
____ Timing of cash flows if different than recommended
____ Total capital requirement timing if different than divided equally over the construction period
____ Timing of depreciation if different than last year of construction; revenue, total expense and taxes
if other than the year after capital is expended
____ Table of unescalated cash flows
____ Escalating factors used, if any
____ ADR class life assumed (Table C-3)
____ Federal tax rate if different than 34%
____ Combined federal and state (after assuming federal tax credit for state) if different than 39.1%
____ Is salvage considered?
____ Is debt interest included in cash flow?
____ Weighted cost of capital (after tax) if other than 9.3%
____ Debt and equity fraction if other than 32% and 68%, respectively
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APPENDIX D - Report Content: TABLE D-2
(*)
-- MINIMUM REQUIREMENTS FOR REPORT
(*) To be used for publication in trade journals or other special circumstances.
Process Flow Diagram
Table B-1
Table B-2 (without the detail of each piece of equipment)
Table B-7
Table B-8
Table D-3
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APPENDIX D Report Content: TABLE D-3
(*)
-- TABLE OF DEVIATION FROM PRACTICE
(*) See text for discussion of individual factors recommended
Recommended Deviation
Design Premises
Plant location U.S. Gulf Coast (Houston)
Sparing
90% availability (excl. planned
maintenance)
Capital Costs
Material and labor factors See Tables B-3 and B-4
Fringe benefits 35% of total labor
Small tools factor 3-5% direct field labor
General facilities factor 15% of total process capital (TPC)
Home office overhead and fee
(contractor + client)
15% of TPC
Prepaid royalties 0.5% of TPC
Working capital basis 2 months annual operating cost
Spare parts inventory 0.5% of TPC
Storage time
Fuel 90 days
Chemicals 90 days
Raw materials 90 days
Operating Costs
Supervisory labor 15% of direct labor
Maintenance labor 3% of total plant cost
Maintenance material 3% of total plant cost
Indirect labor 75% of total direct labor
Indirect material 25% of total direct labor
Payroll overhead Same as for capital costs
Property taxes and insurance 2% of total plant cost
Corporate overhead 60% of total labor
Selling expense 10% of sales
Financial Analysis
Cash flow timing
Total cap. requirement Divided equally over the years of
construction
Revenue, oper. costs, and taxes One year after capital expended
Depreciation Starts in last year of capital expenditure
ADR class life See Table C-3
Federal tax rate 34%
Combined federal and state tax rate 39.1%
Salvage Not considered
Debt interest Not included if weighted cost of capital
used in NPV calculation
Weighted cost of capital (after tax) 9.3% (see text)
Debt fraction of corporation 32%
Equity fraction 68%
Escalation factors
[Assume an Annual Growth Rate (specify*)]
Capital AGR
Labor for oper. costs AGR + 1%
Fuel and power AGR + 1%
All other oper. exp. AGR
(*) e.g. the Consumers Price Index (CPI) Annual Growth Rate or other rate as deemed appropriate.
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APPENDIX D Report Content: TABLE D-4 -- SUMMARY OF REPORT DESCRIPTIVE MATERIAL
1. Summary and Conclusions
(1)
1.1 Summary of Plant Requirements and Goals
1.2 Performance Summary
1.3 Cost Summary
1.3.1 Capital Cost, $MM
1.3.2 Operating Cost, $MM/yr
1.3.3 Operating Cost, $/unit of production
1.3.4 Measures of Merit
1.3.4.1 NPV
1.3.4.2 IRR
1.3.4.3 Payback Period
1.3.4.4 Others
1.4 Sensitivity study results
1.5 Conclusions as to viability of process/plant
2. Process/Plant Description
(2)
2.1 Plant Design Objectives and Requirements
2.1.1 Overall Plant Objectives
2.1.2 Performance Objectives and Requirements
2.1.3 Plant Interface Requirements
2.1.4 Operational Objectives and Requirements
2.1.5 Configuration
2.1.6 Environmental Considerations
2.1.7 Safety
2.1.8 Maintenance
2.1.9 Instrumentation
2.1.10 Plant Facilities
2.1.11 Codes and Standards
2.2 Plant Sections/Major Systems
2.2.1 Pre-treating Section(s)
2.2.2 Reaction Sections
2.2.3 Separation Section(s)
2.2.4 Environmental Section(s)
2.2.5 Plant Utilities
2.2.6 Plant Facilities
2.2.7 Plant Facilities
2.3 Plant Performance and Operation
2.3.1 Plant Process Description
2.3.2 Plant Performance Evaluation
2.3.3 Plant Operation and Control (Normal and Start-up)
2.4 Plant Site Description
2.5 Other Descriptions)
3. Assumptions
(3)
3.1 Technical
3.2 Cost
4. Capital Investment
(4)
5. Sensitivity Studies
(5)
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6. Tables and Flowsheets
(6)
6.1 Plant Capital Cost Summary (Table B-1)
6.2 Capital Costs by Section (Table B-7)
6.3 Equipment, Utility and Chemical Summary (Table B-2)
6.4 Annual Operating Cost Summary (Table B-8)
6.5 Financial Analysis Summary Tables
6.6 Detailed Equipment List
6.7 Flow Sheets
6.8 Sensitivity Study Tables and Figures
6.9 Table of Recommended Practice Deviations (Table D-3)
(1) The summary and conclusions should be as concise as possible and appear in the front of the report.
A brief description of the plant size, requirements and goals should be followed by a cost summary
table containing the information shown. Following this table a general description of conclusions
reached as a result of the sensitivity study may be given. Finally, concluding remarks concerning the
viability or feasibility of proceeding further in the development of the process should be made.
(2) Process/plant description (also see Sections 8.2, 8.3, 12.1, 12.2, 12.3) This section provides a
description of the objectives and goals of the study and a description of the functions and major
components of the major plant systems. Major design considerations should be included here along
with special discussions of specific plant sections or equipment items as necessary.
(3) Assumptions (also, see Sections 9, 12.1) This section should be used to summarize major process
assumptions, especially those made in areas of emerging or non-standard technologies. This section
should also be used to summarize cost engineering assumptions (i.e. equipment cost build-up
procedures, equipment costing techniques, etc.) especially in those areas where deviations from the
Practice have been made.
(4) This section should be used to discuss any problems or weaknesses encountered in the costing
process to arrive at an estimate of total plant investment cost.
(5) Sensitivity Study (also see Section 12.7) This section should be used to describe the method and
results of the sensitivity study. Each parameter analyzed should be discussed and comparisons
made wherever possible to the base line study.
(6) Tables and Flowsheets. Selected process flow sheets, related drawings, special figures and tables
should appear all together in this section of the report and not next to the page where the flow sheet
or table may actually be first discussed. Although this requirement may violate a general rule of
technical writing, it is in keeping with a more important purpose of this practice to present information
in a manner so that comparisons can be made in the most expeditious manner between reports.