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					PRODUCT and PROCESS DESIGN                                                                                        LECTURE 07




                                Profitability Analysis
                                              Warren D. Seider
                                         University of Pennsylvania
                                         Philadelphia, Pennsylvania

                                                  Holger Nickisch
                                                    Consultant




                   Approximate Measures of Economic Goodness
                                                                                   Total Production Cost

                                                                                   S-C              Usually


                                                         Annual Earnings (Pretax or After - tax)
                 Return on Investment (ROI) =
                                                                        C TCI
                                                                    C TPI + C WC

                            Assume 330 days of operation –
                                330/365 = 0.9041 = operating factor

                            Project production
                                First year -   1/2 × 0.9 capacity
                                Second year - 3/4 × 0.9 capacity
                                Third year - 1.0 × 0.9 capacity
                  For ROI

                            Income Tax = 0.37 × Pretax Earnings

                            After-tax Earnings = Pretax Earnings – Income Tax = 0.63 × Pretax Earnings
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Warren D. Seider, University of Pennsylvania                                                                               1
PRODUCT and PROCESS DESIGN                                                     LECTURE 07




                   Cost Sheet Outline – Table 17.1 (SSL, 2004)




                                     Profitability Analysis                3




                   Cost Sheet Outline – Table 17.1 (SSL, 2004) – Cont’d.




                                     Profitability Analysis                4




Warren D. Seider, University of Pennsylvania                                            2
PRODUCT and PROCESS DESIGN                                                                  LECTURE 07




                   Working Capital

                  CWC = cash reserves + inventory + accts. receivable - accts. payable


                        30 days of        7 days of        30 days of     30 days of
                        raw materials,    liquid and       products at    feedstocks
                        utilities,        solid products   sales price
                        operation,        at sales price
                        maintenance,
                              .           (gases are
                              .           pipelined)
                              .


                                            CTCI = CTPI + CWC



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                     Approximate Measures – Table 17-4 (SSL, 2004)

                        Time value of money ignored – straight-line depreciation used




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Warren D. Seider, University of Pennsylvania                                                         3
PRODUCT and PROCESS DESIGN                                                                   LECTURE 07




                   To obtain more accurate assessments of
                   financial goodness, cash flows are computed
                   for each year of the project.

                     Plant Construction

                        Annual cash flow = - f CTDC – CWC - Cland

                     Operation
                                 Pretax earnings = S – CExcl. dep – D    Use MACRS
                                                                         depreciation
                                 Income Tax = 0.37 Pretax earnings
                                 After-tax earnings = Pretax earnings –Income tax
                                                    = 0.63(S – CExcl. dep – D)
                  Ann. cash flow = After-tax earnings + D - f CTDC – CWC – Cland + …
                                 = 0.63(S – CExcl. Dep) + 0.37D - f CTDC – CWC – Cland + …
                                        Profitability Analysis                          7




                  Modified Accelerated Cost Recovery System
                  MACRS Tax Basis Depreciation – Table 17-4 (SSL, 2004)




                                        Profitability Analysis                          8




Warren D. Seider, University of Pennsylvania                                                          4
PRODUCT and PROCESS DESIGN                                                                LECTURE 07




                       Example


                          15 yr project life

                          CTDC = $90MM, installed over three years (1997-1999)

                          CWC = $40MM

                          At 90% of capacity (3rd yr and later)

                             S = $150MM/yr        (1st yr = $75MM, 2nd yr = $113MM)

                             CExcl. Dep = $100MM/yr (1st yr = $55MM, 2nd yr = $78MM)



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Warren D. Seider, University of Pennsylvania                                                       5
PRODUCT and PROCESS DESIGN                                                            LECTURE 07




                                      Profitability Analysis                     11




                       Profitability Analysis-1.1.xls by Holger Nickisch
                                 See Section 17.8 (SSL, 2004)

                         Aligned with specifications and format of Chapters 16
                         and 17 in SSL, 2004.

                         Extensive Visual BASIC (VBA) programming is
                         used to reduce most common sources of error when
                         setting up a complicated spreadsheet in EXCEL. Data
                         is entered in dialog boxes and output is formatted on
                         presentable pages. The user need not know VBA.

                         Login dialog box – enter user name - ‘student’
                                                  password - ‘engineer’

                         Start New Analysis or Load Existing Analysis

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Warren D. Seider, University of Pennsylvania                                                   6
PRODUCT and PROCESS DESIGN                                                               LECTURE 07




                             Monochlorobenzene Separation Process




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                       From ASPEN PLUS simulation (file MCB.bkp):

                          MCB product (S14) –        5,572.1 lb/hr - $0.54/lb
                          Feed stream (S01) –        9,117.1 lb/hr - $0.30/lb
                          Benzene by-product (S11) – 3,132.7 lb/hr - $0.15/lb

                          High pressure steam -        1365.5 lb/hr - $0.004/lb
                          Cooling water -              129,270 lb/hr – $0.000006/lb
                          Electricity -                9.6 kW - $0.04/kWhr

                       Purchase Costs
                                            Purchase Cost      Bare Module Factor
                          Absorber            $29,900                  4.16
                          Distil. Column      115,600                  4.16
                          Heat Exchangers      11,900                  3.17
                          Flash & Storage      87,200                  4.16
                          Pumps                 5,000                  3.3

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Warren D. Seider, University of Pennsylvania                                                      7
PRODUCT and PROCESS DESIGN                                                        LECTURE 07




                          Working Capital

                              Inventory

                                   MCB product          4 days
                                   Feed                 2 days

                              Accounts Receivable       30 days

                          Note: Defaults in spreadsheet are recommended in
                                Chapters 16 and 17 (SSL, 2004)

                          Solution is provided in Section 17.8

                          Student Assignment – Exercise 17.21 – Toluene
                                               hydrodealkylation process
                                      Profitability Analysis                 15




Warren D. Seider, University of Pennsylvania                                               8

				
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