RECOMMENDATIONS ON PROFITABILITY OF

CYCLOHEXANE PRODUCTION FROM BENZENE

HYDROGENATION
Prepared for

Independent Refineries Inc.

Prepared by

Steven Crossley, President and Chief Executive Officer

Bonnie Grider, Vice President, Project Manager
Ben Thompson, Vice President, Financial Services
Vi Pham, Vice President and General Counsel
Nina Wright, Vice President, Strategy and Operations
Green Solutions, Inc.

Green Solutions
Incorporated
http://students.ou.edu/P/Vi.T.Pham-2/

SUMMARY
The profitability of Independent Refineries, Inc.s (IRI) new process of producing
cyclohexane through the hydrogenation of benzene was evaluated. An inflation rate of 4%
and sinking fund depreciation was used to estimate the net profit. The plant overhead was
8% of the total product cost and the operating rate is 90%.
It was determined that the new process was not profitable according to IRIs criterion
(minimum acceptable rate of return = 8%). The average return on investment for this
process was found to be -3197 %/yr. The net present worth was found to be -$472 million.
The discounted cash flow rate and pay-out time could not be calculated because the total
annual cash flow was found to be negative.
It was found that if the value of cyclohexane was increased by 5 times the original product
value, the cyclohexane production unit would prove to be profitable. Decreasing the value of
cyclohexane would make the unit unprofitable.
Standard preliminary projection methods were used to estimate the total fixed capital
investment, annual product cost, and annual cash flow for the life of the project for the
cyclohexane production unit. These values were found to be $2.253 million/yr, $202
million/yr, and -$719 million, respectively.

TABLE OF CONTENTS
Summary ..................................................................................................................................................................... 2
Recommendations ................................................................................................................................................... 4
Introduction ............................................................................................................................................................... 4
Calculation and Selection Methods................................................................................................................... 4
Equipment Sizing and Pricing........................................................................................................................ 4
Heat Exchangers ............................................................................................................................................. 5
Compressor....................................................................................................................................................... 5
Mixer.................................................................................................................................................................... 6
Reactor................................................................................................................................................................ 6
Flash Drum........................................................................................................................................................ 6
Splitter ................................................................................................................................................................ 7
Distillation Column ........................................................................................................................................ 7
Prices of Raw Materials and Product .......................................................................................................... 8
Economic Calculations ........................................................................................................................................... 9
Capital Investment Calculations ........................................................................................................................ 9
Annual Total Product Cost Calculations ......................................................................................................... 9
Annual Cash Flow Calculations ........................................................................................................................ 10
Depreciation and Taxes ....................................................................................................................................... 10
Profitability .............................................................................................................................................................. 11
Profitability Calculations .................................................................................................................................... 11
Profitability Evaluations ..................................................................................................................................... 12
Appendices ............................................................................................................................................................... 12

RECOMMENDATIONS
Independent Refineries, Inc.s new process of producing cyclohexane through the
hydrogenation of benzene was found to be not profitable. The Net Present Worth was found
to be -$472 million and the return on investment was found to be less than the minimum
rate of return (-3197% < 8%).
Green Solutions, Inc. recommends that the value of cyclohexane should be increased. It was
found that 5 times the original product value is sufficient.

INTRODUCTION
The purpose of this project is to perform an economic analysis on producing cyclohexane
through the hydrogenation of benzene. Independent Refineries, Inc. would like to add a
cyclohexane producing process onto their existing refinery plant. The new process includes
three heat exchangers, one reactor, one flash drum, one splitter, one mixer, one compressor,
and one distillation column with a reboiler and condenser. Independent Refineries, Inc.
would like to sell the 98% pure cyclohexane and keep the process in operation for an
economic life of ten years with a constant production rate.
The minimum acceptable rate of return for Independent Refineries, Inc. projects is 8%. The
rate of return for this project is calculated assuming the net profit of the project is
determined using sinking fund depreciation with an inflation rate of 4% and overhead costs
of 8% of the total production cost.

CALCULATION AND SELECTION METHODS

EQUIPMENT SIZING AND PRICING
The total equipment cost in 2008 for this process is approximately $345,000. Table 1 is a
summary of the breakdown of the individual equipment costs.
EQUIPMENT COSTS (2008)
Equipment
Cost ($)
Compressor (C1)
56000
Condensor (1)
3236
Distillation Column (T1)
164114
Flash Drum (F1)
8400
Heat Exchanger (E1)
10,039
Heat Exchanger (E2)
5086
Heat Exchanger (E3)
9370
Mixer (M1)
4480
Reactor (R1)
49920
Reboiler (30)
34672
Total

$345,317
Table 1: Equipment Costs for 2008

This following will expand upon the methods used to find the total equipment cost for
this process based on the individual equipment costs.

HEAT EXCHANGERS
This process will consist of three heat exchangers. The initial heat exchanger will transfer
heat from a stream exiting the reactor to a stream exiting the mixer. The tube side and shell
side fluids were assumed to behave as light hydrocarbons. Heat transfer coefficients for
certain heat exchangers are obtained from Table 14-5 in PT&W. The overall heat transfer
coefficient for this type of exchanger had a range of values from 300-425 W/(m2K)
corresponding to values of 52.83-74.85 Btu/(hrft2F). The following equation was used to
calculate the heat exchanger surface area:
Equation 1

lm

, where Q = heat transfer coefficient, U = overall heat transfer coefficient, A = cross-sectional

area, and
lm = log-mean temperature difference.
For example, a heat transfer coefficient value of 75 Btu/(hrft2F) gives a surface area of
848 ft2. The second heat exchanger used steam flowing through tubes to heat the stream
entering the reactor. The standard overall heat transfer coefficient values had a range of
500-1000 W/(m2K) corresponding to values of 88 to 176 Btu/(hrft2F). Using 88
Btu/(hrft2F) a heat transfer area of 222 ft2 was calculated. The third heat exchanger used
cooling water flowing through the shell side to cool the stream exiting the reactor. The
standard overall heat transfer coefficient values had a range of 375-750 W/(m2K)
corresponding to values of 66 to 132 Btu/(hrft2F). Using 70.4 Btu/(hrft2F) a heat
transfer area of 481 ft2 was calculated.
The costs of these heat exchangers in 1958 were determined using Fig. 11-41 in Perrys
Chemical Engineers Handbook. The exchangers were evaluated as U-tube exchangers with
x 16 tubes, and a 15/16 triangular pitch. The Marshall-Swift Index is then used to find
the current cost of the equipment.
Exchanger

Surface Area

Fluids

Cost

E1

848 ft2

Tube: Light HCs Shell: Light HCs

$10,039

E2

222 ft2

Tube: Steam

$5086

E3

481 ft2

Tube: Light HCs Shell: Cooling Water

Shell: Light HCs

$9370

Table 2: Heat Exchanger Summary

COMPRESSOR
From the given information about the compressor, it is 80% efficient and would actually use
71.5 horsepower. From this information, the cost of the compressor was estimated to be
$56,000 when made from carbon steel, which should be sufficient for the time period and

the materials used1. It is also assumed that a centrifugal motor compressor will be adequate
for the system.

MIXER
The estimation of the cost of the mixer was based on the capacity of the tank. To find the
capacity of the tank, an assumed residence time of 10 minutes was multiplied by the
volumetric flow rate coming out of the mixer (62.78 m3/hr). This gives a mixer volume of
10.46m3. From figure 12-52 on page 557 of Peters, Timmerhaus, and West (PTW)2, a mixing
tank with an agitator with this capacity has an equipment cost of $4000 for the year 2002.
Using the Marshall-Swift Index (1.12), the corrected equipment cost for the year 2008 is
$4480.

REACTOR
Reactor cost was estimated as a shell and tube heat exchanger due to design similarities.
The heat exchange surface area was calculated based on the given reactor dimensions, and
then a preliminary cost was estimated through the use of figure 14.17 on page 1 of Peters,
Timmerhaus, and West (PTW)3. This value was corrected to account for the tube diameter,
reactor length, and pressure of the reactor system. In order to correct for the tube
diameter, data from figure 14.21 on page 683 was fit with a second order polynomial and
then extrapolated to the 3 diameter of interest. The ratio of cost per heating area was then
multiplied by the estimated value obtained by figure 14.17. The same approach was taken
in order to correct for the reactor length by utilizing figure 14.22, and the pressure of the
system (14.23). After these corrections, the cost of the reactor was estimated to be $41,600.

FLASH DRUM
The size of the flash tank was estimated by calculating the terminal velocity of the mixture
as outlined by the Gas processors Engineering Data Book.4 It was assumed that the
gravitational forces on the droplets were greater than the drag forces of the surrounding
gas, and gravity settling was the primary means of separation. The drag coefficient was
estimated by a correlation between the drag coefficient and the Reynolds number of the
stream. This was done by utilizing equation 7-3 in the Engineering data book to calculate
the product of the drag coefficient and the square of the Reynolds number as follows:

Equation 2
Where C is the drag coefficient, and all values for this equation were given from a previous
thermodynamic report of the system except for the viscosity and the average particle
diameter, Dp. The viscosity was calculated with Pro/II based on the stream composition and
temperature and utilizing the Sloave-Redlich-Kwong equation of state. This value was
found to be 0.0976, which is very close to that of a pure hydrogen stream under these
conditions. The average particle diameter was assumed to be 200 microns as this is a
common particle size for these operating conditions according to figure 7-5. Once these
values were found, figure 7-4 was used in order to obtain an estimate of the drag coefficient.
6

Once the drag coefficient was estimated, equation 7-1 was used in order to calculate the
terminal velocity of the stream as follows:

Equation 3
Once the terminal velocity is known, the required cross sectional area can be calculated
according to equation 7-9 as the ratio of the volumetric flow rate divided by the terminal
velocity. This was calculated to be 5.68 ft2, and the flash length/diameter ratio of 3 was
assumed based on the low operating pressure.5 After the capacity of the tank was known,
Figure 12.52 of PTW3 was used in order to estimate the purchase cost of the flash. The final
purchased cost was estimated to be $7,000.

SPLITTER
The cost of the splitter is small compared to the other equipment cost. It is assumed for this
project that the separator cost will be included within the cost of piping for the process.

DISTILLATION COLUMN
The distillation column produces concentrated cyclohexane exiting the distillation column
at the bottom. The distillation column has 28 trays with one evaporator and one condenser.
In order to determine the height and the diameter of the column the following equation was
used:

Vm =
,where Vm = Max flood velocity,

= density of liquid,

Equation 4
= density of vapor

Once the max flood velocity is determined the actual vapor velocity is determined to be 0.6
of the max flood velocity, resulting in an actual velocity of 2.88ft/sec or 10368 ft/hr. With
this value the net column area can be calculated using the formula:

Equation 5
The net column area is equal to An and mv is the molar flow rate of vapor. From this
equation the net column area is equal to 90.44 ft2 . The net column area plus the
downcomer area gives the cross sectional area of the column. The downcomer area is
assumed to be 12% of the net column area. Therefore the cross sectional area of the
column is determined to be 101.24 ft2 .
Next, the diameter and the height of the column can be determined using the value of the
calculated cross sectional area of the column. The diameter is calculated using the following
equation:
Diameter of Column

Equation 6
7

The diameter of the column is 11.2 ft2 , and the height of the column is 68 ft. The price of the
distillation column is determined from Figure 15-11 in PT&W. The price for a distillation
column with 28 carbon steel trays is $142,000 in 2002. The price of the column in 2007 is
$164,000. The cost of the condenser and evaporators are determined in the same way as
the heat exchangers. The results of all prices are listed below:
Equipment

Surface Area

Condenser

769 ft2

Evaporator

587 ft2

Distillation
Column

Height: 68ft
Diameter: 11ft

Fluids

Cost

Tube: Light HCs Shell:

Cooling Water
Tube: Light HCs Shell:
Steam
N/A

$2800
$30,000
$164,000

Total Distillation Equipment

$202,000

Table 3: Distillation Column Summary

All equipment costs that were based off of older predictions were scaled for the year 2008
using the Marshall Swift Process Industry Indexes6. A linear regression was made to find
the index for the future year of 2008, shown in the appendix.

PRICES OF RAW MATERIALS AND PRODUCT

The price of the feedstock hydrogen was assumed to be 1.25 times the current price of
naptha. This was found to be currently $2.07/gallon7. Based off of this, the price of
hydrogen was calculated at $1.03/kg. The price of feedstock benzene was found to be
$3.64/gallon8, and the price of the product, cyclohexane, was found to be about
$3.44/gallon9.
By using the given feed flow rate, product flow rate, and operating rate (0.90) for the
process, the annual amount of required benzene, required hydrogen, and produced
cyclohexane were found. These values were 110.7 million kg/yr, 13.41 million kg/yr, and
98.1 million kg/yr, respectively. The total annual raw material cost and total product value
was calculated to be approximately $132 million and $115 million, respectively.
Material

Price
$/kg
Benzene 1.07
Hydrogen 1.03

RAW MATERIALS
Annual Amount
Annual Raw Material Costs
million kg/yr
$M / yr
110.7
118.449
13.41
13.8123

Total annual raw material costs

132.2613

Table 4 : Raw Material Cost Summary

Material
Cyclohexane

Price
$/kg
1.17

PRODUCT
Annual Amount
million kg/yr
98.1

Annual Product Value

$M / yr
114.777

Total product value

114.777

Table 5 : Product Value Summary

ECONOMIC CALCULATIONS
CAPITAL INVESTMENT CALCULATIONS
The total capital investment was calculated using the following formula:
I= IF+IW =IM+ID+II

Equation 7

,where I = total capital investment (TCI), IF = fixed capital investment (FCI),

IW = working capital, ID = direct manufacturing costs, II = indirect auxiliary costs.

Lang factors for a fluid-processing plant were used as a basis for estimations of
costs.
The total capital investment, fixed capital investment, and working capital were
approximately $2.253 million, $1.914 million, and $0.338 million, respectively.

ANNUAL TOTAL PRODUCT COST CALCULATIONS

The annual total product cost was calculated using the following formula:
C=CI+CQ+CO +CG

Equation 8

,where C = total annualized product cost (TPC), CI = fixed costs,

CQ = direct production cost, CO = plant overhead, CG = general expenses.

The percentages used for the basis of estimations of costs were approximations to
ordinary chemical processing plants (table 6-18, (PTW)10). The plant overhead is
given to be 8% of the total product cost.
The calculation of the annual operating labor cost was based on a similar plant
located in the Middle Atlantic area, which had a labor cost of $350/hr of operation.
By using the relative labor rate and productivity indexes (table 6-12, (PTW)11) and an
operating rate of 0.90, the annual operating labor cost for the Southwest was found to be
$2.114 million/yr.

The total annualized product cost without depreciation was calculated to be

approximately $202 million/yr.

ANNUAL CASH FLOW CALCULATIONS

The annual cash flow was calculated using the following formulas:

R=S-C

Equation 9

P = R - eIF - (R - d IF) t

Equation 10

CF=P+D=R-Taxes

Equation 11

,where R = gross profit, S = income from sales, C = total product cost, P = net profit,
e = depreciation rate, IF = fixed capital investment, d = depreciation rate,
t = taxation rate, CF = cash flow, D = depreciation
The annual cash flow for the life of the project was found to be approximately -$719
million.

DEPRECIATION AND TAXES

The method of depreciation used for estimating the net profit was sinking fund
depreciation. The following formulas were used to calculate the depreciation:
Da = V - V a

(1 i ) 1
(1 i ) n 1

Equation 12

Va = V (V-Vs) *

Equation 13

,where Da = depreciation after a years, V = original value, Va = book value,

Vs = salvage value, i = interest rate, a = number of years of use, n = economic life in years.
All taxes were calculated assuming a tax rate of 34% based on the gross profit of the process
according to Table 7-7, (PTW, pg. 304)12. In order to correct the taxable income for
depreciation, the MARCS method was used in order to calculate the maximum allowable
depreciation for taxation purposes. These values were estimated based on table 7-9 (PTW,
pg 313). Once the maximum allowable depreciation was calculated, this value was
subtracted from the annual gross profit for each year and then multiplied by the income tax
rate in order to calculate the final income tax value.

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PROFITABILITY
PROFITABILITY CALCULATIONS
The four following equations are used to evaluate profitability:
Return on Investment (ROI)
ROI

P
I

Equation 14

,where P = net profit, I = total capital investment.

Net Present Worth (NPW)
n 1

NPW
k 1

CFk

1 i

CFn VS I W

1 i n

TCI

Equation 15

,where CF = cash flow, Vs = salvage value, Iw = working capital, i = interest,

TCI = total capital investment, n = economic life in years .
ROI Based on Discounted Cash Flow (DCFR)
n

TCI CFk 1 r VS I W 1 r
k

Equation 16

k 1

,where r = DCFR.
Pay-out Time
POT

I F VS
Average Cash

Flow

Equation 17

A project is considered profitable if:

the ROI is equal to or greater than the minimum acceptable rate of return
the NPW is positive
the POT is less than or equal to the reference value.

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PROFITABILITY EVALUATIONS
The evaluation of the profitability of the process was based on four criteria: Net Present
Worth (NPW), Return on Investment (ROI), ROI based on Discounted Cash Flow (DCFR),
and Pay-Out Time (POT).
The following table summarizes the four criteria for three different cases:
Case 1: Original Product Price
Net Present Worth, $M
Return on Investment, average %/yr
ROI based on Discounted Cash Flow,
%/yr
Pay Out Time, yr

-472
-3197
---

Case 2: 5X Original Product Price

Net Present Worth, $M
2004
Return on Investment, average %/yr
13600
ROI based on Discounted Cash Flow , %yr
11300
Pay Out Time, yr
0.005309
Case 3: 0.5X Original Product Price
Net Present Worth, $M
Return on Investment, average %/yr
ROI based on Discounted Cash Flow , %yr
Pay Out Time, yr

-782
-5297
---

Table 6: Profitability Summary

The only case that is profitable was Case 2, where the original product price was multiplied
by 5. The NPW is positive, the ROI is greater than the minimum rate of return of 8%, and the
POT is less than the reference value. For Case 1 and Case 3, the process is not profitable
because the NPW and ROI is negative. The ROI based on discounted cash flow and POT
cannot be calculated for these cases because the total annual cash flow is negative.

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REFERENCES
Peters, Timmerhaus, West, Plant Design and Economics for Chemical Engineers, Fifth Edition. New
York, 2003. Pg. 531.
2 Peters, Max; Timmerhaus, Klaus; West, Ronald; Plant Design and Economics for Chemical Engineers,
5th Edition. 2003. Pg. 557.
3 Peters, Max; Timmerhaus, Klaus; West, Ronald; Plant Design and Economics for Chemical Engineers,
5th Edition. 2003.
4 Engineering Data Handbook, Gas Processors Association; Tulsa, OK. 2004
5 Walas, S. M., Chemical Process Equipment, Selection and Design, 1990.
6 Peters, Timmerhaus, West, Plant Design and Economics for Chemical Engineers, Fifth Edition. New
York, 2003. Pg. 238.
7 ICIS pricing, 9th April, 2007. USGULF N+A naptha price.
8 ICIS pricing, 6th April, 2007, US Gulf benzene price.
9 ICIS pricing, 6th April, 2007, US price of cyclohexane.
10 Peters, Max; Timmerhaus, Klaus; West, Ronald; Plant Design and Economics for Chemical Engineers,
5th Edition. 2003. Pg. 273.
11 Peters, Max; Timmerhaus, Klaus; West, Ronald; Plant Design and Economics for Chemical Engineers,
5th Edition. 2003. Pg. 256.
12 Peters, Max; Timmerhaus, Klaus; West, Ronald; Plant Design and Economics for Chemical Engineers,
5th Edition. 2003. Pg. 273.
1

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