lecture 9- principles of economics

1. ENG. KAREEM H. MOKHTAR
Economics and
Implementation

2. ECONOMICS
• Total capital investment
• Annual cost of a plant
• Time value
• Interest
• Cash flow diagram
• Optimization

3. OPTIMIZATION
• The energy efficient model will save the
consumer $15 per month in energy costs.
• From an economic point of view, we can
say that the return on the extra $300
invested in the efficient model is
$15 x 12 = $180/year, which generates
a 50% internal rate of return
500$ 800$

4. TOTAL CAPITAL INVESTMENT
• Fixed Capital Investment
• Equipment Cost
• Working Capital Investment

5. ANNUAL COSTS OF A PLANT
• Production Cost
• Break Even Analysis
• Depreciation

6. EQUIPMENT COST
• Equipment cost could be calculated using charts, equations, or tables
• Factors to be taken into consideration
• Size of equipment (e.g.: diameter, height, volume or area of heat transfer).
• Material of construction.
• Operating conditions (e.g.: pressure).

7. CALCULATION
• Present cost = Old cost x
𝑖𝑛𝑑𝑒𝑥 𝑣𝑎𝑙𝑢𝑒 𝑎𝑡 𝑝𝑟𝑒𝑠𝑒𝑛𝑡
𝑖𝑛𝑑𝑒𝑥 𝑣𝑎𝑙𝑢𝑒 𝑎𝑡 𝑝𝑎𝑠𝑡

8. EXERCISE
• Calculate the cost of a condenser with the following specifications
• fixed tube sheets
• area 25.3 m2
• carbon steel shell and tubes
• operating pressure 1 bar.

9. EXERCISE
• Calculate the cost of a Cooler with the following specifications
• U tubes
• area 10.1 m2,
• carbon steel shell and tubes
• operating pressure 5 bar.

10. TOTAL CAPITAL INVESTMENT (TCI)
• TCI is the money utilized in a project to make a profit.
• Fixed capital investment (FCI) + Working capital investment (WCI).
• FCI is the sum of money paid to build up a plant and make ready for start up.
• WCI is the additional sum of money required to start and operate the plant to the
point when income is earned (1-3 months). (Totally recovered at the end of the
service life, theoretically)

11. FIXED CAPITAL INVESTMENT (FCI)
• By Scaling
• An approximate estimate of the capital cost
•
𝐹𝐶𝐼 𝑜𝑓𝐴
𝐹𝐶𝐼 𝑜𝑓𝐵
=
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝐴
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝐵
0.6

12. THE FACTORIAL METHOD
• Lang method
• Coulson’s method
• Physical plant cost (PPC)
• Indirect plant cost (IPC)

13. COULSON

15. WORKING CAPITAL INVESTMENT (WCI)
• WCI=5-30% FCI
• Typically 15% FCI

16. EXERCISE
• Your equipment cost is 10 times the cost of
• A stainless steal heat transfer unit with a 600 m2 of heat transfer area, it has a
floating head and it operates at 7 bar

17. BASIC CALCULATION
• Pay back time =
𝐹𝐶𝐼
𝐴𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡
• % return on capital investment =
‫݈ܽݑ݊݊ܣ‬ ܲ‫ݐ݂݅݋ݎ‬
𝐹𝑖𝑥𝑒𝑑 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

18. BREAK EVEN ANALYSIS
• Break even analysis depends on the following variables:
• 1. The fixed production costs for a product.
2. The variable production costs for a product.
• 3. The product's unit price.
4. The product's expected unit sales

19. BREAK EVEN ANALYSIS
Revenue
total
variable

20. EXERCISE
• For a certain factory. Each unit retails at $5. It costs you $2 to make
each one, and the fixed costs for the period are $750. What is the
break-even point in units and in sales revenue?
• Also if the plant operates at 100% capacity, find the annual gross earning and the
net profit when 22% normal tax is required on the total earnings