2nd Chapter

Question 1

Capital for the required manufacturing and plant facilities

Answer 1

fixed capital investment

Question 2

Capital required for the operation of the plant

Answer 2

working capital

Question 3

Sum of the fixed-capital investment and the working capital

Answer 3

labeled as total capital investment

Question 4

Capital required for the installed process equipment (e.g. vessels, reactors, columns, heat exchangers,
pumps, motors, fans, filters, etc.) with all auxiliaries needed.

Answer 4

Direct field costs (manufacturing fixed capital)

Question 5

Capital required for construction overhead and for plant components which are not directly related to
the process operation.

Answer 5

Indirect field costs (nonmanufacturing fixed capital)

Question 6

Cost indexes

Answer 6

Indexes can be applied to get a general cost estimate
Cost indexes are often used to extrapolate costs into the future and work fairly accurate if the
period considered is less than 10 years

Question 7

Average installation cost of equipment

Answer 7

30%-70%

Question 8

Piping costs

Answer 8

80 % of purchased-equipment

cost or 17 % of the fixed capital investment (FCI).

Question 9

(Methods for the estimation of capital investment) Method A

Answer 9

Detailed-item estimate
Determination of each item of the fixed capital investment
Achieved accuracy: ± 5 %

Question 10

(Methods for the estimation of capital investment)

Method B

Answer 10

Unit cost estimate
Based on detailed estimation of purchased equipment costs obtained from quotations or indexcorrected cost records and published information.
An accuracy of ± 10 - 20 % is achieved

Question 11

(Methods for the estimation of capital investment)

Method C

Answer 11

Percentage of delivered-equipment cost
Based on the determination of the delivered equipment costs.
Usage of average percentage values → should be determined in accordance to the type of plant,
complexity, materials of construction, location etc.
expected accuracy of ± 20 - 30 %

Question 12

(Methods for the estimation of capital investment)

Method D

Answer 12

Lang factors for approximation of capital investment
Method presented by H.J. Lang was based on a study of fourteen plant estimates of various sizes
and types, ranging from $100 000 to $15 000 000
Commonly used to obtain order of-magnitude cost estimates with
± 50 % .

Question 13

(Methods for the estimation of capital investment)

Method E

Answer 13

Power factor estimate
Power factor x applied to plant capacity ratio.
C_new = C_ex * f_e * R^x
cost index = fe
R → capacity of the new plant divided by the capacity of existing plant
average power factor x has been obtained in the range of 0.6 to 0.7

Question 14

(Methods for the estimation of capital investment)

Method F

Answer 14

Investment cost per unit of capacity
Method based on: Determination of the unit investment costs (for average conditions).
Division of costs by capacity → Fixed-capital investment per unit of annual production capacity

Question 15

(Types of capital cost estimates) Class 1

Answer 15

Detailed estimates (± 5 %)

Question 16

(Types of capital cost estimates) Class 2

Answer 16

Definitive estimate (± 10 %)

Question 17

(Types of capital cost estimates) Class 3

Answer 17

Preliminary estimate (± 20 %)

Question 18

(Types of capital cost estimates) Class 4

Answer 18

Study estimate (up to ± 30 %)

Question 19

(Types of capital cost estimates) Class 5

Answer 19

Order of magnitude (> ± 30 %)

Question 20

Money earned by sales of main products and by-products

Answer 20

Overview of revenues

Question 21

Return on investment (ROI)

Answer 21

ROI = Net Income/ Invesment

Question 22

Cost Indexes (Present Cost)

Answer 22

Present Cost = Original Cost * (Index Today/ Index at Original)

Question 23

Direct field costs

Answer 23

Capital required for the installed process equipment (e.g. vessels, reactors, columns, heat exchangers,
pumps, motors, fans, filters, etc.) with all auxiliaries needed.

Question 24

Indirect field costs

Answer 24

Capital required for construction overhead and for plant components which are not directly related to
the process operation.

Question 25

NPV > 0

Answer 25

Investment is profitable and would add value to the company

Project may be accepted

Question 26

NPV = 0

Answer 26

Investment would neither gain nor lose value for the company
Indifferent decision as the project adds no monetary value
Decision may be based on other criteria

Question 27

NPV < 0

Answer 27

Investment would subtract value from the company

Project may be rejected