23-Chem-A5 Chemical Plant Design and Economics · December 2018
Question 5 of 6: Top Four Economic Factors in Commercial-Plant Design
Nivaar worked solution (AI-drafted; not reviewed by a licensed engineer)
Notes on this paper
National Exams — December 2018 — 16-Chem-A5 Chemical Plant Design and Economics. Three-hour, closed-book exam; one two-sided aid sheet and an approved Sharp/Casio calculator permitted. Six equally weighted (20-mark) questions are posed and the candidate answers any five; only the first five are marked. All six are answered below for completeness. Question 1 is a process-synthesis flowsheet (catalytic propane dehydrogenation), Question 2 is a numerical discounted-cash-flow (DCFROR) minimum-selling-price calculation, and Questions 3–6 are qualitative design/economics essays (pilot-plant investigation, technical design factors, economic design factors, and a solvent-emission abatement scheme).
Reference texts: M.S. Peters, K.D. Timmerhaus & R.E. West, Plant Design and Economics for Chemical Engineers (5th ed., McGraw-Hill) — the exam's named primary text (pilot plants Ch. 3, general design considerations and plant-location factors Ch. 2–3, interest/depreciation/profitability Ch. 7–10); R.K. Sinnott & G. Towler, Chemical Engineering Design (Coulson & Richardson vol. 6) — economic analysis, cash-flow/DCFROR and flowsheeting; R. Smith, Chemical Process Design and Integration (2nd ed., Wiley) — reaction–separation–recycle structure; supporting Canadian practice from CCOHS, provincial OH&S regulation and Environment and Climate Change Canada air-emission guidance.
Question 5: Top Four Economic Factors in Commercial-Plant Design (20 marks)
Given / Find. A qualitative question asking for the four most important economic factors governing a commercial-plant design, given that the aim is a workable plant with the maximum return on investment.
A technically sound design is worthwhile only if it earns an acceptable return. The four economic factors below are the ones a designer must estimate and optimise; together they determine profitability.
Total capital investment (TCI). The sum of fixed capital (installed equipment, buildings, services, contingency) and working capital. It sets the money that must be raised and recovered, drives depreciation and the capital-recovery charge, and is the denominator of every return measure, so its accurate estimation is fundamental.
Total product cost. The annual cost of making the product: manufacturing costs (raw materials, utilities, labour, maintenance, depreciation) plus general expenses (administration, distribution, R&D). Raw materials usually dominate, so the design must minimise consumption and maximise yield; product cost sets the break-even price.
Profitability — return on investment. The measures that combine revenue, cost and capital into a decision: return on investment (ROI), payback period, net present worth and discounted-cash-flow rate of return (DCFROR). These, evaluated after tax and against the firm's minimum acceptable rate of return, decide whether the plant is built and which design alternative is chosen.
Product price, sales volume and market. Projected selling price and the size and stability of the market set the revenue and hence the return; because markets and prices are uncertain, sensitivity and break-even analysis (as in Question 2's uncertain-market pricing) are used to test the design against adverse price and demand scenarios.
Check: these four map onto the structure of Peters & Timmerhaus's economics chapters — capital investment, total product cost, profitability measures, and revenue/price — and are exactly the quantities combined in the DCFROR calculation of Question 2. Time-value-of-money treatment (interest, taxes, depreciation) underlies all four and could be listed as a fifth.
