ENGINEERING ECONOMICS
ENMG403
Coursework 1
Caledonian College of Engineering
Saltant Of Oman
Table of Content
Executive Summary ………………………………..……………………………3
Problem statement …………………………………………………………8
Product description and application ………………………………………
Financial Analysis …………………………………………………………16
major equipment which are used in a citric acid plant …………21
Estimation of total cost of equipment in 2018for 100 tonnes ………………………………….23
Estimation of FCI , TCI, WCI direct cost and indirect cost ………………………………………………………………..23
Estimation of Total product cost TPC ………………………………………………..27
estimation of the rate of return …………………………………………………27
comment of ROR
Conclusion ……………………………………………………………………………………………………………28
References …………………………………………………………………………………………………………30
Executive summary:
Citric acid is an organic solid which is soluble in water with a melting point of approximately 153 °C. It is a ubiquitous natural substance that appears as an intermediate in the basic physiological citric acid cycle in every eukaryote cell. Citric acid has been produced for many years in high volumes and added to processed food and beverages. Citric acid may be produced by recovery from sources such as lemon or pineapple juice or fermentation of carbohydrate or other suitable solutions.
This report will explain of feasibility and analysis of starting the citric acid production plant by Caledonian chemical LLC in Oman. It contain the estimates and analysis of: fixed capital investment(FCI), working capital investment(WCI), total capital investment(TCI), total product cost, total income, gross profit, tax, net profit and estimation of the rate of return.
As a feasibility study, this dissertation aims to define the requirements which is need to do the citric acid plant and identifying the strategic issues to be considered to assess its feasibility, or likelihood of succeeding. This analysis is most useful when start a new business, or identify a new opportunities for an existing business.
This project estimate the manufacturing cost for the plant requires four years for installation and will take 2015 to 2018 to do the estimate cost and if this cost is feasible for project or not. If it is feasible and the rate of return is good will start doing the project in 2015.
Problem statement:
The purpose of this report is to identify a feasibility analysis of production of Citric Acid by Caledonian chemical CCL in Oman. The following major equipment as given in below table and the current cost of the equipment.
Problem Statement
The purpose of this report is to identify a feasibility analysis of starting Caledonian Citric Acid production plant in Oman. The following major equipment as given in below table and the current cost of the equipment are known and listed in the table.
-
SI.No.
Equipment (2014)
Qty Required
Cost (2014) OMR.
1
Distillation Column
2
25000
2
Condenser
4
30000
3
Gas-Liquid Separators
4
10000
4
Reboiler
1
2900
5
Extractor
1
9700
6
Solvent Stripper
1
13000
7
Pumps
5
6800
8
Clay Treator
1
2100
9
Liquid-Liquid Separator
1
1000
Also the plan required five years for installation and commissioning. The cost of the equipment are likely to be escalation which is considered as the main problem, and this escalation has to be considered in the total cost estimation.
The cost index is needed to estimate the cost of equipment in the future. By using the marshall and swift installed-equipment index, from 1987-2002. Assuming that the project start in 2015 and finishing in 2020.
Drawing graph between the years (X-axis) and index (Y-axis) to find the equation of the straight line and then finding the slop and intercept to calculate the index for the next years
The index can be find by using Y= mx + c equation, where the is m is the slope and c is the intercept o Y-axis.
Assuming that the equipment are purchased after two years since the project start after five years. As a result, the cost of purchased equipment will change according to the index. So the cost of purchased equipment can be estimated in 2016.
Major Equipment which are used in a citric acid plant:
Air Filtration :
It is usually made of a spun fiberglass material or from pleated paper or cloth enclosed in a cardboard frame. The basic function of this equipment is to clean the air or to remove the impurities form it that circulates through your heating and cooling system which is required in a citric acid plant to complete the process.
Reactor Vessel
It’s an equipment which is used to controls the level of power in the core, In addition, it is very important in a citric acid plant, there are a lot of functions which reactor vessel has to perform and some of these are as follows:
To withstand the high pressure with exists inside the reactor and to provide a safe working environment for all concerned.
To Control of the nuclear reaction is absolutely necessary and this is done with the help of control rods. The reactor vessel provides a place to insert these control rods in the nuclear reactor and move them in or out of the reactor core depending on the requirements of power.
Sterilizers:
Sterilizers are the instruments which are used to kill or eliminate transmissible substances like bacteria, fungi etc. that may be effect on the quality of production, on any surface or object by the application of heat, irradiation.
Blending/Storage:
A container which is used to combine the raw material ingredients and also to mix them together in preparation for the production of the citric acid.
Compressor:
A powered device which is used to increases the pressure of a gas by reducing its volume. Compressors increase the pressure on a fluid and have the ability to transport the fluid through a pipe. When the gases are compressible, the volume of a gas is reducing by the Compressor.
Fermentor:
It’s an apparatus which are used to maintain the optimal conditions for the growth of microorganisms. Some product chemicals, like acetic acid, citric acid, and ethanol are made by fermentation.
Crystallizer:
It’s a chemical processing equipment which is used in liquid-solid separation process. It have a capability of generating a high purity products with a relatively low energy input.
.
Cost Index:
Marshall and swift installed-equipment index:
|
Number of year |
Year |
index for All industries |
|
1 |
1987 |
814 |
|
2 |
1988 |
852 |
|
3 |
1989 |
895 |
|
4 |
1990 |
915.1 |
|
5 |
1991 |
930.6 |
|
6 |
1992 |
943.1 |
|
7 |
1993 |
964.2 |
|
8 |
1994 |
993.4 |
|
9 |
1995 |
1027.5 |
|
10 |
1996 |
1039.1 |
|
11 |
1997 |
1056.8 |
|
12 |
1998 |
1061.9 |
|
13 |
1999 |
1068.3 |
|
14 |
2000 |
1089 |
|
15 |
2001 |
1093.9 |
|
16 |
2002 |
1102.5 |
Using excel program to find:
Slope and intercept.
Index for the next years, by drawing a graph to find the equation of the straight line,
Y = m X + c
Y- Is the index
X- Is the years
| Slope |
18.72264706 |
| intercept |
831.2575 |
|
Number of year |
Year |
Slope |
Intercept |
index for All industries |
|
17 |
2003 |
18.72264706 |
831.2575 |
1149.5425 |
|
18 |
2004 |
18.72264706 |
831.2575 |
1168.265147 |
|
19 |
2005 |
18.72264706 |
831.2575 |
1186.987794 |
|
20 |
2006 |
18.72264706 |
831.2575 |
1205.710441 |
|
21 |
2007 |
18.72264706 |
831.2575 |
1224.433088 |
|
22 |
2008 |
18.72264706 |
831.2575 |
1243.155735 |
|
23 |
2009 |
18.72264706 |
831.2575 |
1261.878382 |
|
24 |
2010 |
18.72264706 |
831.2575 |
1280.601029 |
|
25 |
2011 |
18.72264706 |
831.2575 |
1299.323676 |
|
26 |
2012 |
18.72264706 |
831.2575 |
1318.046324 |
|
27 |
2013 |
18.72264706 |
831.2575 |
1336.768971 |
|
28 |
2014 |
18.72264706 |
831.2575 |
1355.491618 |
|
29 |
2015 |
18.72264706 |
831.2575 |
1374.214265 |
|
30 |
2016 |
18.72264706 |
831.2575 |
1392.936912 |
|
31 |
2017 |
18.72264706 |
831.2575 |
1411.659559 |
|
32 |
2018 |
18.72264706 |
831.2575 |
1430.382206 |
|
33 |
2019 |
18.72264706 |
831.2575 |
1449.104853 |
|
34 |
2020 |
18.72264706 |
831.2575 |
1467.8275 |
|
In 2003= (18.72264706) * (17) + (831.2575) = 1149.5425 |
|
In 2004= (18.72264706) * (18) + (831.2575) = 11680265147 |
|
In 2005= (18.72264706) * (19) + (831.2575) = 1186.987794 |
|
In 2006= (18.72264706) * (20) + (831.2575) = 1205.710441 |
|
In 2007= (18.72264706) * (21) + (831.2575) = 1224.433088 |
|
In 2008= (18.72264706) * (22) + (831.2575) = 1243.155735 |
|
In 2009= (18.72264706) * (23) + (831.2575) = 1261.878382 |
|
In 2010= (18.72264706) * (24) + (831.2575) = 1280.601029 |
|
In 2011= (18.72264706) * (25) + (831.2575) = 1299.323676 |
|
In 2012= (18.72264706) * (26) + (831.2575) = 1318.046324 |
|
In 2013= (18.72264706) * (27) + (831.2575) = 1336.768971 |
|
In 2014= (18.72264706) * (28) + (831.2575) = 1355.491618 |
|
In 2015= (18.72264706) * (29) + (831.2575) = 1374.214265 |
|
In 2016= (18.72264706) * (30) + (831.2575) = 1932.936912 |
|
In 2017= (18.72264706) * (31) + (831.2575) = 1411.659559 |
|
In 2018= (18.72264706) * (32) + (831.2575) = 1430.382206 |
|
In 2019= (18.72264706) * (33) + (831.2575) =1449.104853 |
|
In 2020= (18.72264706) * (34) + (831.2575) = 1467.8275 |
-
SI.NO
equipment
cost of equipment in 2015
cost of equipment in 2018
1
Blending/Storage
42344.5
44075.23694
2
Sterilizer
76990
80136.79443
3
Air Filtration -1
9623.75
10017.0993
4
Compressor
103936.5
108184.6725
5
Air Filtration -2
5774.25
6010.259583
6
Fermentor
461940
480820.7666
7
Blending/Storage -2
42344.5
44075.23694
8
Reactor vessel -1
124338.8
129420.871
9
Rotary vaccum -1
44269.25
46078.6568
10
Reaction vessel – 2
140121.8
145848.9659
11
Rotary vaccum -2
35107.44
36542.37826
12
Crystallizer
13473.25
14023.93903
Total
1100264.04
1145234.877
-
index for year 2018 1430.382206
index for year 2015 1374.214265
Cost of equipment in 2018 = cost of equipment in 2015 * index for year 2018/ index for year 2015
For Blending/Storage= 42344.5* (1430.382206/1374.214265)= 44075.23694
For Sterilizer = 76990* (1430.382206/1374.214265)= 80136.79443
For Air Filtration -1= 9623.75* (1430.382206/1374.214265)= 10017.0993
Compressor=103936.5* (1430.382206/1374.214265)= 108184.6725
For Air Filtration -2= 5774.25*(1430.382206/1374.214265) = 6010.259583
For Fermentor= 461940*(1430.382206/1374.214265) = 480820.7666
For Blending/Storage-2= 42344.5*(1430.382206/1374.214265) = 44075.23694
For Reactor vessel -1= 124338.8*(1430.382206/1374.214265) = 129420.871
For Rotary vaccum -1=44269.25*(1430.382206/1374.214265) = 46078.6568
For Reaction vessel – 2=140121.8*(1430.382206/1374.214265) = 145848.9659
For Rotary vaccum -2= 35107.44*(1430.382206/1374.214265) = 36542.37826
For Crystallizer=13473.25*(1430.382206/1374.214265) = 14023.93903
|
Component |
Range of FCI,% |
Selected% |
Normalised % |
Est. Cost |
|
Direct Cost |
||||
| 1. Purchased equipment |
15-40% |
27 |
21.77 |
1145234.877 |
| 2. Purchased equipment installation |
6-14% |
10 |
8.06 |
424005.1956 |
| 3. Instrumentation & control |
2-8% |
5 |
4.03 |
212002.59786 |
| 4. Piping |
3-20% |
11 |
8.87 |
46661601396 |
| 5. Electrical Equipment &Materials |
2-10% |
6 |
4.84 |
254613.5418 |
| 6. Building (including services) |
3-18% |
10 |
8.06 |
424005.1956 |
| 7. Yard improvements |
2-5% |
3 |
2.42 |
127306.7709 |
| 8. Service facilities |
8-20% |
14 |
11.29 |
593922.9104 |
| 9. Land |
1-2% |
1 |
0.81 |
42610.94397 |
|
Indirect Cost |
||||
| 1. Engineering and supervision |
4-21% |
13 |
10.48 |
551311.9665 |
| 2. Construction expenses |
4-16% |
9 |
7.26 |
381920.3126 |
| 3. Contractor’s fee |
2-6% |
4 |
3.24 |
170443.7759 |
| 4. Contingency |
5-15% |
11 |
8.87 |
466616.1396 |
|
Total = |
124 |
100 |
5260610.367 |
Total of selected = 124
Total of selected is more than 100 so will calculate the Normalised % by:
27*100/124= 21.77
Purchased-Equipment Cost = 1145234.877
Fixed Capital Investment (FCI)
FCI = Purchased-Equipment Cost *100 / 21.77
= 1145234.877 *100/21.77 = 5260610.367
Working Capital Investment (WCI)=10 – 20% of Total capital Investment (TCI)
Select 18% = 0.18
WCI =0.15TCI
= 0.18* 6415378.496
= 1154768.129
Total capital Investment (TCI)
TCI = FCI + WCI
TCI = FCI + 0.18 TCI
TCI = FCI/0.18
= 5260610.367 /0.82
= 6415378.496
3) Total Production Cost (TPC) per tonne of citric acid
| SI.NO | Range | Selected% | Normilized% | |
|
1 |
manufacturing cost | |||
| A.Direct production costs | 66% of TPC |
66% |
58.40707965 |
|
| B. Fixed charges | 10-20% of TPC |
18% |
15.92920354 |
|
| c. Plant overhead costs | 5-15% of TPC |
9% |
7.96460177 |
|
|
2 |
General Expenses | 15-25 of TPC |
20% |
17.69911504 |
| Total |
113% |
100 |
|
SI.NO |
range |
|
|
i |
manufacturing cost |
|
|
A |
Direct production cost |
66% TPC |
|
1 |
Raw materials |
10-80% TPC |
|
2 |
Operating labor |
10-20% TPC |
|
3 |
Direct supervisory & clerical labor |
0% |
|
4 |
Utilities |
10-20% TPC |
|
5 |
Maintenance &repairs |
2-10% FCI |
|
6 |
Operating supplies |
0.5-1% FCI |
|
7 |
Laboratory charges |
0% |
|
8 |
patents & royalties |
0-6% TPC |
|
B |
Fixed charges |
10-20% TPC |
|
1 |
Depreciation |
building(15%)+ purchased equipment instillation |
|
2 |
Local taxes |
1-4% FCI |
|
3 |
Insurance |
0.4-1% FCI |
|
4 |
Rent |
0% |
|
5 |
Financing |
0-10% TCI |
|
c |
plant overhead costs |
5-15% TPC |
|
ii |
General expenses |
|
|
A |
Administrative cost |
2-5% TPC |
|
B |
Distribution and marking cost |
2-20% TPC |
|
C |
Research and development |
5% TPC |
Calculation of total product cost TPC:
Equation of total production cost = manufacturing cost + general expenses
Finding the manufacturing cost:
Manufacturing cost= direct production cost + fixed charge +plant overhead cost
Fixed charges = 15% of the total product cost (TPC) : eq 1
Depreciation =est. Buildings * range + est. Purchased equipment* range
= 8.06*424005.1956 + 8.06*424005.1956
= 6834963.753 RO
Local taxes= 2% of fixed capital investment
= 0.02*5260610.367
= 105212.2073 RO
Insurance = 0.6% of fixed capital investment
= 0.006 * 5260610.367
= 31563.6622 RO
Rent = 0
Financing = 5% of total capital investment
= 0.05 * 6415378.496
320768.9248 RO
So, fixed charges = depreciation + local taxes+ insurance+ rent+ financing
= 6834963.753 + 105212.2073 + 31563.6622 + 0 + 320768.9248
= 7292508.547 RO
From eq1, fixed charges = 0.15*TPC
So, TPC= fixed charges /0.15 = 7292508.547 /0.15 = 48,616,723.65 RO
Direct production cost=66%TPC
= 0.66*48616723.65 = 32087037.61 RO
Plant overhead costs = (5-15) % TPC
= 10% TPC
=0.10 *48616723.65
= 4861672.365 RO
So, Manufacturing cost= Fixed charges + Direct production cost + Plant overhead costs
= 7292508.547 + 32087037.61 + 4861672.365
= 44241218.52 RO
Administrative cost= (2-5)% TPC
=3% TPC
= 0.03* 48616723.65= 1458501.71 RO
Distribution and marketing costs= (2-20)% TPC
= 10% *TPC
=0.10 * 48616723.65= 4861672.365 RO
Research and development costs = 5% TPC
=0.05 * 48616723.65= 2430836.183 RO
So, General expenses = Administrative cost+ Distribution and marketing costs+ Research and development costs
=1458501.71 + 4861672.365 + 2430836.183
= 8751010.258 RO
So, Total product cost = Manufacturing cost + General expenses
= 44241218.52 + 8751010.258
= 52992228.78 RO
From fixed charges TPC is 48,616,723.65 RO but in eq15 is 52992228.78 RO. There is some difference between this two values because of the range is not fixed so I will take the average of it by: (48,616,723.65 + 52992228.78)/2 = 50,804,476.22 RO
So, TPC= 192358045.185RO
Estimation of Rate of Return (ROR):
Rate of Return = (return /TCI)*100
Return = selling – cost , assume selling
= 9,541,236.364 – 6,415,378.496
= 3125857.868 RO
So ROR = (3,125,857.868 / 6,415,378.496) *100
= 48.7 = 49 %
Product Description:
Citric acid (C6H8O7, 2 – hydroxy – 1,2,3 – propane tricarboxylic acid), a natural constituent and common metabolite of plants and animals, is the most versatile and widely used organic acid in the field of food (60%) and pharmaceuticals (10%). It has got several other applications in various other fields. Currently, the global production of citric acid is estimated to be around 736000 tones/year.
Application:
Citric acid is mainly used in food industry because of its pleasant acid taste its high solubility in water. It is worldwide accepted as “GRAS” (generally recognized as safe), approved by the Joint FAO/WHO Expert Committee on Food Additives. The pharmaceutical and cosmetic industries retain 10% of its utilization and the remainder is used for various other purposes. Table presents main applications of citric acid.
| IDUSTRY | APPLICATION |
Beverages Provides tartness and complements fruits and berries flavors.
Increases the effectiveness of antimicrobial preservatives.
Used in pH adjustment to provide uniform acidity.
Jellies, Jams and Preserves Provides tartness. PH adjustment.
Candy Provides tartness. Minimizes sucrose inversion.
Produces dark color in hard candies.
Frozen fruit Lowers pH to inactivate oxidative enzymes. Protects ascorbic acid by inactivating trace metals.
Dairy products as emulsifier in ice creams and processed cheese; acidifying agent in many cheese products and as an antioxidant.
Fats and oils Synergist for other antioxidants, as sequestrant.
Pharmaceuticals As effervescent in powders and tablets in combination with bicarbonates. Provides rapid dissolution of active ingredients.
Cosmetics and toiletries pH adjustment, antioxidant as a metallic–ion chelator.
Industrial applications Neutralizing, buffer agent Metal cleaning Removes metal oxides from surface of ferrous and nonferrous metals.
Others In electroplating, copper plating, metal cleaning, leather tanning, printing inks, bottle washing compounds, floor cement, textiles, etc.
Conclusion:
Conclusion:
| Total capital investment | |
| Total product cost | |
| Rate of return |
From the table , there is an increase in the cost of this details and the rate of return is 49% which is mean I can start this project to produce A citric Acid with production of 100 ton / annum. The rate of return of this project it can be high by increase the selling price or used another equipment which are have the less price comparing with the equipment which are used in this project.
References:
For conclusion & application
http://www.scielo.br/pdf/babt/v42n3/v42n3a01.pdf
For introduction
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