Q1)
A new chemical plant is to be built in the UK . The plant will have operating costs of £1 million/year and an income of £2.5 million/year. The plant will take 1 year to build, operate for 6 years and the capital will be borrowed at an interest rate of 6% APR.
(a) Estimate the maximum capital investment to give a return on investment of 20% pretax.
[10 Marks]
(b) The plants operation costs can be split down to £ 0.5 million/year fixed costs and £0.5 /year variable costs when the plant is run at full capacity of 50 thousand tonnes /year. The plant runs at 50% capacity in the first year of production, 75% of capacity in year 2 and only reaches full capacity at the start of the third year of production. Assuming the capital cost is the same as estimated from part (a) what effect will this have on the achievable return on investment? Note:- you will need to calculate the DCFRR.
[15marks]
Q2)
A plant with a capacity of 35000 tonnes per year was built in 2000 at a capital cost of 20 million pounds in the UK. It is proposed to build a new plant, in France, to produce 50000 tonnes.
(a) Estimate the capital cost of the new plant. Note- The currency in France changed to the Euro from the Franc in (2002)
[11 marks]
The plant is known to operate at a maximum pressure of 60 bar and temperature of 625°C and is built out of austenitic stainless steel requiring a material factor 0.2
(b) Estimate the number of functional units in the existing plant.
[6 marks]
The new plant uses new technology that has reduced the number of functional units by 2.
(c) How will this affect your estimate of capital cost for the French plant? State your assumptions?
[8 marks]
Country Cost index Cost index Cost index Cost index Cost index
1996 2000 2002 2006 2012
France 100 107 110.5 117 134
UK 127 136 168 221
Country Location factor
1996 Exchange rate
(1996) Exchange rate
(2002)
Pound:franc Franc to euro
France 1.05 1:7.74 1:0.152
UK 1
Q3)
A Process plant is to be debottlenecked to increase capacity by 50000 tonnes per year. The plant is due to shut down in 8 years’ time as newer technologies will render the plant obsolete. The proposed modification will cost £6 million pounds, and take 1 year to complete.
(a) The modification is to be financed by company A using a loan based on a simple interest rate of 8% APR. The loan is an interest only product and the capital will be repaid at the end of the project. Determine if the plant will achieve the desired return on investment given inflation runs at 3%.
[10 marks]
(b) A second company B is prepared to offer the money as a repayment with a compound interest flat rate of 8%. Is this a better option that that outlined in part (a).
[15 marks]
Additional data
Income per tonne of product £300/tonne
Required return on investment 20%
Working capital 3 months sales income
Q1)
It is desired to build a chemical plant with a pretax return on investment of 25%. The plant will have operating costs of £1.5 million/year and an income of £4.3 million/year. The plant will take 2 years to build, operate for 6 years and the capital will be borrowed at an interest rate of 6%APR.
(a) Estimate the maximum capital investment to give a return on investment of 25% pre tax. State clearly all assumptions made.
[12 Marks]
(b) Use Zevnik and Buchannan’s equation to estimate the maximum capacity of the plant if the plant consists of 7 functional units, operates at 20 bar pressure and 500°C. State clearly your assumptions and the confidence limits for the capacity.
[10 marks]
(c) What is the minimum selling price per tonne of product if the desired return on investment is to be achieved?
[3 marks]
Q2)
You receive a call from Australia asking for a preliminary estimate for a chemical plant to produce phosphorus oxychloride.
(a) What are the main questions you need to ask in order to provide the desired estimate?
[6 marks]
You discover a batch phosphorus oxychloride plant was built in the UK in 2005 that used the following elements: 3 storage tanks, a blender, a glass lined reactor, a distillation column, 1 reboiler, 1 condenser , 1 product storage tank and 6 pumps.
(b) You decide to base your estimate on the UK plant. State clearly the assumptions you are making with this method.
[6 marks]
Given the information below, estimate the following for a plant built in Australia in 2010:
(c) The cost of the delivered process equipment.
[9 marks]
(d) The cost fixed capital cost.
[3 marks]
(e) What would you expect the confidence limits to be for this estimate?
[1 marks]
Equipment cost data from 2005 in UK pounds.
unit Cost Scale Index
Storage tank 10m3 £650/m3 0.6
Blender 5m3 £6000/m3 0.4
Reactor 7m3 110°C 1 Atm £8200/m3 0.5
Distillation column 2 m dia, 10 m high ,120°C, 1 Atm £5000/ m3 0.7
Reboiler 20m2 £1500/ m2 0.6
Condenser 20 m2 £1500/ m2 0.66
pump £1200/ 0.66
Exchange rate A$→ £ 2.1 (2005) 1.8 (2010)
Location factor (2005) 1.0 (UK) 1.4(Australia)
Cost index (2005) 120 (UK) 125 (Australia)
Cost index (2010) 254 (UK) 279(Australia)
Q3)
A plant costs £78 million and is constructed in one year. Income from sales total £83 million/year and the plant is subject to operating costs of £53 million/year. A repayment loan is taken out to finance the project at an APR of 5 %.
(a) Given a working capital of 3 months sales, compile a cashflow table for this project and estimate the NPW.
Note. The plant will operate for 6 years, taxation is charged at 23% depreciation at 25% reducing balance and inflation is currently at 4%.
[20 marks]
(b) In reality the world economy hits recession in the second year of the project and inflation drops to 0% instantaneously for 2 years. It then rises at a rate of 1% per year to the end of the project. What effect will this have on the NPW for this project? Is it still viable?
[5 marks]