Activity 15 – Plant Design

1. For a typical project, the cumulative cash flow is zero at the________________.

A. breakeven point. C. start up.
B. end of the project life. D. end of the design stage.

2. Which of the following is notof the following is not a current asset of a chemical company?
A. Inventories C. Chemical equipments
B. None of these. D. Marketable securities

3. In declining balance method of depreciation calculation, the

A. none of these.
B. annual depreciation is the fixed
percentage of the property value
at the beginning of the particular
year
C. annual cost of depreciation is same
every year.
D. value of the asset decreases linearly
with time.

4. Operating profit of a chemical plant is equal to

A. net profit + tax C. profit before interest and tax i.e.,
B. profit after tax net profit + interest + tax
D. profit after tax plus depreciation

5. Direct costs component of the fixed capital consists of

A. onsite and offsite costs C. labor costs
B. contingencies D. raw material costs

6. The ratio of working capital to total capital investment for most chemical plants (except for
non-seasonal based products) is in the range of___________ percent
A. 1 to 2 C. 0.1 to 1
B. 10 to 20 D. 50 to 60

7. Which of the following relationship is not correct is case of a Chemical process plant?
A. General expenses = administrative expenses + distribution & marketing expenses
B. Manufacturing cost = direct product cost + fixed charges + plant overhead costs
C. Total product cost = direct production cost + plant overhead cost
D. Total product cost = manufacturing cost + general expenses

8. The ______________ of a chemical company can be obtained directly from the balance
sheet as the difference between current assets and current liabilities.
A. current ratio C. cash ratio
B. net working capital D. liquids assets

9. For a given fluid, as the pipe diameter increases, the pumping cost
A. increases C. decreases
B. remains the same. D. may increase or decrease, depending
upon whether the fluid is Newtonian or
non-Newtonian.
10. Scheduling provides information about the
A. time of starting of job and also about how much work should be completed
during a particular period.
B. means to minimize idle time for machines.
C. properutilization of machines.
D. time of completion of job.

11. Factory manufacturing cost is the sum of the direct production cost, plus
A. fixed charges and plant overhead C. none of these.
cost. D. plant overhead cost and administrative
B. and plant overhead cost. expenses.

12. Cost of instrumentation in a modern chemical plant ranges from ______________ percent
of the total plant cost.
A. 60 to 70 C. 5 to 10
B. 40 to 50 D. 20 to 30

13. With increase in the discounted cash flow rate of return, the ratio of the total present value
to the initial investment of a given project
A. decreases C. increases linearly
B. increases D. remains constant

14. Gantt chart (or Bar chart) is helpful in

A. preparing production schedule. C. Efficient dispatching of products.
B. Efficient utilization of manpower and D. inventory control.
machines.

15. The depreciation during the year 'n', in diminishing balance method of depreciation
calculation, is calculated by multiplying a fixed percentage ‘N’ to the
A. depreciation during the (n - 1)th year. C. initial cost.
B. difference between initial cost and D. book value at the end of (n - 1) th
salvage value. year

16. Gross earning is equal to the total income minus

A. income tax C. total product cost
B. none of these D. fixed cost

17. Out of the following, the depreciation calculated by the method is the maximum.
A. diminishing balance C. sinking fund
B. straight line D. sum of the years digit

18. Which of the following is not a component of working capital?

A. Finished products in stock. C. Transportation facilities.
B. Semi-finished products in the process. D. Raw materials are stock.

19. The economic life of a large chemical process plant as compared to a small chemical plant is
A. almost equal C. slightly less
B. only slightly more D. much more
20. Which of the following is not a component of the working capital for a chemical process
plant?
A. Minimum cash reserve. C. In-process inventory.
B. Product inventory D. Storage facilities.

21. Manufacturing cost in a chemical company does not include the

A. direct products cost. C. fixed charges.
B. administrative expenses. D. plant overheads.

22. Construction expenses are roughly ____ percent of the total direct cost of the plant.
A. 2 C. 10
B. 80 D. 30

23. Effluent treatment cost in a chemical plant is categorized as the __________ cost.
A. fixed C. utilities
B. overhead D. capital

24. A balance sheet for a chemical plant shows its financial condition at any given date. It does
not contain the ____________ of the plant
A. current asset C. long term debt
B. profit D. current liability

25. An annuity is a series of equal payments occurring at equal time intervals, and this amount
includes the sum of all payments plus interest, if allowed to accumulate at a definite rate of
interest from the time of initial payment to the end of annuity term. Ordinary annuity is
used in the calculation of the
A. discrete compound interest. C. depreciation by sinking fund
B. cash ratio method.
D. manufacturing cost.

26. Annual depreciation costs are constant, when the ____________ method of depreciation
calculation is used.
A. declining balance C. sum of the years digit
B. straight line D. none of these

27. _______________ method for profitability evaluation of a project does not account for
investment cost due to land.
A. Rate of return on investment C. Pay out period
B. Discounted cash flow D. Net present worth

28. Which of the following is not a component of the depreciation cost?

A. Loss due to decrease in the demand of C. Repairs and maintenance cost.
product. D. Loss due to accident/breakdown in the
B. Loss due to obsolescence of the machinery.
equipment.
29. Fixed capital investment of a chemical plant is the total amount of money needed to supply
the necessary plant and manufacturing facilities plus the working capital for operation of the
facilities. Which of the following components of fixed capital investment requires minimum
percentage of it?
A. Equipment installation cost. C. Electrical installation cost.
B. Equipment insulation cost. D. Cost for piping.

30. Which of the following is the cheapest material of construction for the storage of sodium
hydroxide up to a concentration of 75%?
A. Copper C. Stainless steel
B. Plain carbon steel D. Nickel

31. The total capital investment for a chemical process plant comprises of the fixed capital
investment and the
A. working capital C. direct production cost
B. indirect production cost D. overhead cost

32. Equipment installation cost in a chemical process plant ranges from ____________percent
of the purchased equipment cost.
A. 35 to 45 C. 10 to 20
B. 70 to 80 D. 55 to 65

33. Cost incurred towards _________________in a chemical plant is a component of the

utilities cost.
A. water supply C. running a control laboratory
B. property protection D. medical services

34. The payback method for the measurement of return on investment

A. does not measure the discounted after the recovery of investments.
rate of return. C. Under emphasizes liquidity.
B. takes into account the cash inflows D. gives a correct picture of profitability.

35. Utilities' in a chemical process plant includes compressed air, steam, water, electrical power,
oxygen, acetylene, fuel gases etc. Utility costs for ordinary chemical process plants ranges
roughly from _______________ percent of the total product cost
A. 35 to 45 C. 25 to 35
B. 1 to 5 D. 10 to 20

36. Which of the following is the costliest material of construction used in pressure vessel
construction?
A. Low alloy steel C. Titanium
B. Lead D. High alloy steel

37. In a manufacturing industry, breakeven point occurs, when the

A. total annual product cost equals the assigned value.
the total annual sales C. annual sales equals the fixed cost
B. total annual rate of production equals D. profit equals the expected value.
38. "Six-tenth factor' rule is used for estimating the
A. utilities cost. C. equipment installation cost.
B. cost of piping D. equipment cost by scaling.

39. Which of the following is a component of working capital investment?

A. Depreciation. C. Process equipments.
B. Maintenance and repair inventory D. Utilities plants.

40. Which of the following does not come under the sales expenses for a product of a chemical
plant?
A. Warehousing C. Legal fees
B. Advertising D. Customer service.

Linkage Problem:
A manufacturer has purchased a machine for $80.000. Its useful life is 5 years, at which time it
can be sold for $5000. The hourly costs at $7.50/hr, the annual costs are $1000/yr. This
machineis used to make castings. Each casting requires about 100 min to produce. The material
for each casting is $8.00. If the cost of money is 8%, calculate the cost per unit to make each
casting for the following number of castings per year.
41. 120 castings
A. $123.40 C. $147.90
B. $188.70 D. $223.80

( 1.08 )5∗0.08
Depreciation d=( 80000−5000 )
[ ( 1.08 )5−1 ]=$ 18784.23/ yr

Interest on Salvage Value=0.08 ( 5000 ) =$ 400/ yr

Annual costs=$ 1000 / yr
Total Annual ‘Fixed’ Cost = $20184.23
For 120 castings/yr:
Materials = 120 castings * $ 8.00/ casting = $960
min hrs
Total hours of operation = 120 castings * 100 * = 200 hours/yr
casting 60 min
min
Total cost of hourly operation = 200 hours * $7.50 = $1500/yr
casting
Total Annual Cost = $ 22644.23
$ 22644.23
Cost per casting = = $188.70
120 castings

42. 220 castings

A. $112.25 C. $127.32
B. $144.22 D. $167.45

For 220 castings/yr:

Materials = 220 castings * $ 8.00/ casting = $1760
min hrs
Total hours of operation = 220 castings * 100 * = 366.67 hours/yr
casting 60 min
 min
Total cost of hourly operation = 366.67 hours * $7.50 = $2750/yr
casting
Total Annual Cost = $ 24694.23
$ 24694.23
Cost per casting = = $112.25
220 castings

43. 550 castings

A. $ 57.20 C. $ 66.30
B. $81.40 D. $ 96.50

For 550 castings/yr:

Materials = 550 castings * $ 8.00/ casting = $4400
min hrs
Total hours of operation = 550 castings * 100 * = 916.67 hours/yr
casting 60 min
min
Total cost of hourly operation = 916.67 hours * $7.50 = $6875/yr
casting
Total Annual Cost = $ 314594.23
$ 31459.23
Cost per casting = = $57.20
550 castings

Linkage Problem:
We have at least a million dollar for investments if we can receive a return of 15%/yr. Three
different proposals for modifying the assembly line have been made.

Proposal A B C
Investment, $ 140,000 165,000 190,000
Annual 21,750 26,750 29,750
Savings, $

44. Which proposal has the highest %return?

A. Proposal A C. Proposal C
B. Proposal B D. Cannot be determined

$ 21750
%Return A= ∗100=15.5357 %
$ 140000
$ 26750
%Return B= ∗100=16.2121%
$ 165000
$ 29750
%ReturnC= ∗100=15.6579 %
$ 190000
The highest % return is Proposal B.

45. Which is the best proposal?

A. Proposal A C. Proposal C
B. Proposal B D. Cannot be determined

The proposal with the highest %return is the best proposal. Proposal B
Linkage Problem:
There are two alternatives for a proposed new grease line. Plan A uses an electrically powered
belt that costs with a 5-yr salvage value of $300. The power cost is $1.4 use and maintenance
should run $150/yr. Plan B uses a reconditioned gas engine costing $500 with no salvage van
Gas and oil costs are estimated at $0.60/hr and operator (usually the janitor) is paid $3/hr.
Because of its age, maintenance cost is going to be $0.25/operating hour. Assuming that the
canning line will be needed for 5 years.
46. Determined the hours of line use per year to break-even. Solve by equivalent annual cost
methods before taxes.
A. 113.2 hr C. 179.2 hr
B. 133.4 hr D. 185.2 hr

Total Cost A:
( 1.12 )5∗0.12
Depreciation A=( 1500−300 )
[ ( 1.12 )5−1] =$ 332.89 / yr

Interest on Salvage Value=0.12 ( 300 )=$ 36 / yr

Maintenance = $150 /yr
Power = $1.00X
Total Cost A = 518.89 + 1X
Total Cost B:
(1.12 )5∗0.12
Depreciation A=( 500 )
[( 1.12 )5−1]=$ 138.70/ yr

Interest on Salvage Value=0.08 ( 0 )=$ 0/ yr

Maintenance = $0.25 /hr
Operator = $0.60/hr
Gas and oil = $3.00/hr
Total Cost B = 138.7 + 3.85X
Equating both costs: 518.89 + X = 138.70 + 3.85X
X = 133.4 hours

47. Which plan is better if the operating hours is above this break-even point?
A. Plan A C. Either option
B. Plan B D. Cannot be determined

Assume 140 hours:

Total Cost A = 518.89 + 140 = $658.89
Total Cost B = 138.7 + 3.85(140) = $677.7
Plan A has lower cost than Plan B. Plan A

48. A refinery was built on an island in a river before the owners were informed that the island
 was occasionally under water. Historical data indicate that the chance of flooding is one in
seven each year. The likely flood damage would cost $25,000. A levee could be built at a
cost of $60,000 with a useful life of 28 years with no salvage. If money is available at 10%,
should the levee be built? A. Yes, the levee should be built?
A. Yes, the levee should be built C. Either option is acceptable
B. No, the levee should not be built D. Cannot be determined

( 1.1 )28∗0.1
Depreciation of Levee=60000∗
[ ]
(1.1 )28−1
=$ 6447. 06/ yr

(1.1 )7∗0.1
Cost due ¿ flood damages=25000∗
[
( 1.1 )7−1 ]
=$ 5135.14/ yr

Cost due to flood damages < Cost for Levee

No, the levee should not be built.

Linkage Problem:
Paint Acosts $7.00/gal and covers 350 ft2/gal. The manufacturer claims that it will last 4 years
and can be applied at a rate of 100 ft 2/hr. Paint B costs $10/gal and covers 500 ft 2/gal. It will
last 5 years and can be applied at a rate of 125 ft 2/hr. If the painter is paid $4/hr and interest
rate is 10%,
49. What is the annual cost for paint A?
A. $0.01425/ft2yr C. $0.01893/ft2yr
B. $0.01667/ft yr
2
D. $0.02022/ft2yr

$4
∗1 hr
hr
Painter cost = 2
=$ 0.04 /ft 2
100 ft
$7
∗1 gal
gal
Paint cost = 2
=$ 0.02/ft 2
350 ft
Total cost = $0.04 + $0.02 = $0.06/ft2
( 1.1 )4∗0.1
Depreciation=0.06∗
[ 4
( 1.1 ) −1 ]
=$ 0.01893/ft 2 ∙ yr

Annual cost = $0.01893/ft2∙yr

50. What is the annual cost for paint B?

A. $0.01162/ ft2yr C. $0.01556/ ft2yr
B. $0.01372/ ft2yr D. $0.01725/ ft2yr

$4
∗1 hr
hr
Painter cost = 2
=$ 0.032 /ft 2
125 ft
$ 10
∗1 gal
gal
Paint cost = 2
=$ 0.02/ ft 2
500 ft
Total cost = $0.032 + $0.02 = $0.052/ft2
(1.1 )5∗0.1
Depreciation=0.052∗
[ 5
( 1.1 ) −1 ]
=$ 0.01372/ft 2 ∙ yr

Annual cost = $0.01372/ft2∙yr

51. Which paint should be used?

A. Paint A C. Either option is acceptable
B. Paint B D. Cannot be determined

Annual cost of A > Annual cost of B

Choose Paint B.

Linkage Problem:
52. It is planned to use the excess profit into building a new branch office. It would cost
$150,000 to set up a Davao office. Annual revenues would be $68,000 and annual costs
$58,000. It would cost $180,000 to open a Cebu office. Annual costs would be $50,000 and
annual revenues $75,000. If it is assumed that there is no salvage value after 20 years for
either office, which branch should be opened?
A. Cebu C. Either Cebu or Davao
B. Davao D. Cannot be determined

Davao Office:
Depreciation by SLM: $150000 / 20 years = $7500/yr
Annual Gross Profit = $68000 - $58000 - $ 7500 = $2500
Cebu Office:
Depreciation by SLM: $180000 / 20 years = $9000/yr
Annual Gross Profit = $75000 - $50000 - $9000 = $16000
Cebu Office

Linkage Problem:
A plant can be built in either one or two stages. The data in the table below is for current costs.

Capacity, Annual Construction

lb/yr Maintenance costs
1st 100,000
stage
2nd 175,000
stage
All at 175,000
once

The increased capacity is not needed until 20 years from now. Money can be borrowed at 10%.
Construction cost will rise 6% per year. Maintenance costs after 20 years are assumed equal for
the two projects.
53. What is the present worth of the 2nd stage if construction is done in two stages?
 A. $5,718,901
B. $7,139,239
C. $9,681,105
D. $10,772,921

54. What is the total present worth it construction is in two stages?

A. $18,400,021
B. $19,201,730
C. $20,400,021
D. $21,902,720

55. What is the present worth if construction is all done today?

A. $18,906,380
B. $19,428,570
C. $20,338,450
D. $21,723,690

56. The Annual Fixed Charges (AFC) and Annual Utilities Costs (AUC) of a distillation column
being designed are expressed in terms of the reflux ratio (R) as AFC = 641R2 - 1796R +
1287 + 1/(R-1,16); AFC = 80 + 62.5R. The reflux ratio (Ropt) for optimizing the total cost
of the distillation column. may be found by solving A.
A. 1282ROPT-1796 - 1/(ROPT-1.16)2 = 0
B. 62.5 + 1282ROPT- 1796 - 1/(Ropt- 1.16)2= 0
C. 80 + 62.5ROPT + 641 RopT2- 1796ROPT + 1287 + 1/(ROPT - 1.16)=0
D. 80 + 625ROPT - 641ROPT2- 1796ROPT-1287 1 1/(ROPT - 1.16)=0

57. In the year 2005, the cost of a shell and tube heat exchanger with 68 m 2 heat transfer area
was $126,000. The Chemical Engineering Index for cost in 2005 was 509.4 and now the
index is 575.4. Based on index of 0.6 for capacity scaling, the present cost of a similar heat
exchanger having 100 m2 heat transfer area is estimated to be
A. 17.94 C. 20.94
B. 19.94 D. 22.94

C now I now Capnow n

= ×
C2005 I 2005 Cap2005

126,000∗575.4 100 0.6

C 2005= ∗
509.4 68

C 2005=$ 179380

58. A furnace installed at a cost of $240,000 is expected to serve its useful life of 5 years.
Salvage value of the furnace is $8,000. The interest rate compounded annually is 8%. The
estimated capitalized cost is
A. 30 C. 34,900
B. 34.09 D. 58,090
 C o−C s
CC =Co + n
(1+ i)

$ 24,000−$ 8,000
CC =$ 24,000+
(1+ 0.08)5

CC =$ 58,091 $ 58,090

59. A reactor having a salvage value of $10000 is estimated to have a service life of 10 years.
The annual interest rate is 10%. The original cost of the reactor was $80000. The book
value of the reactor after 5 years using sinking fund depreciation method will be ...
A. 60196 C. 40096
B. 53196 D. 43196

( C o −C s ) i ( $ 80,000−$ 10,000 ) (0.10)

d= = =$ 4,392.18
(1+ i)n−1 (1+ 0.10)10−1

d∗(1+i)n−1
D n=
i

4,392.18∗(1+0.10)5−1
D5=$ =$ 26,814.70
0.10

BV 5 =C o−D 5

BV 5 =$ 80,000−$ 26,814.70=$ 53,185.30 $ 53,196

60. A machine has an initial value of $5000, service life of 5 years and final salvage value of
$1000. The annual depreciation cost by straight line method is Rs.
A. 1000 C. 800
B. 300 D. 600

( C o−C s ) ( $ 5,000−$ 1,000 )

d= = =$ 800
n 5

61. An investment of $ 100K is to be made for construction of a plant, which will take two years
to start production. The annual profit from the operation of the plant is $20K. What will be
the payback time?
A. 7years C. 5years
B. 10years D. 12years

2 20,000∗(1+0.10)n−1
( $ 100,000 ( 1+ 0,10 ) )=$
0.10

n=4.96+ 2 years 7 years

62. A company is considering two methods for obtaining a certain part. Method A will involve
purchasing a machine for $50,000 with a life of 5 years, a $2,000 salvage value and a fixed
annual operating cost of $10,000. Additionally, each part produced by the method will cost
$10. Method B will involve purchasing the part from a subcontractor for $25 per part. At an
interest rate of 10% per year, the number of parts per year required for the two methods to
break even is
A. 1,333 C. 1,850
B. 1,524 D. 2,011

50,000∗0.10∗( 1+ 0.10 )5 2,000∗0.10

$ 5
−$ n
+ $ 10,000+10 P=25 P
( 1+0.10 ) −1 ( 1+0.10 ) −1

P=$ 1,510.82 $ 1,524.15

63. The purchased cost of a shell and tube heat exchanger, carbon shell, 316 stainless steel
tubes, heat transfer area 500 m2, was $64,000 in January 2003; estimate the cost in
January 2008.
Use the M&S Equipment Cost Index.
Index in 2003 = 1123.6; Index in 2005 = 1244.5
A. $55,000 C. $73,000
B. $81,000 D. $86,000

C2005 I 2005
=
C2003 I 2003

64,000∗1,244.5
C 2005= =$ 70,886.4365
1,123.6

70,886.4365−64,000
% Increase ∈cost= ∗100=10.76 % /2 years
64,000

0.1076 3
C 2008=70,886.4365 1+ ( 2 ) =$ 82,954.0755≈ $ 81,000

64. The cost of constructing a 30,000 MTA acrolein plant was estimated as $80 MM on a 2006
U.S. Golf Coast basis. What would be the cost in U.S dollars on a 2006 Germany basis?
2003 location factor for Germany is 1.11
Exchange rate in 2003 €1 = $1.15
Exchange rate in 2006 €1 = $1.35
A. $104 MM C. $122 MM
B. $76 MM D. $68 MM

MM∗1.35
C 2006 (Germany )=80 ∗1.11=$ 104.2435 MM
1.15

65. Estimate the annual cost of providing refrigeration to a condenser with duty 1.2 MW
 operating at 500. The refrigeration cycle rejects heat to cooling water that is available at
40°C and has an efficiency of 80% of the Carnot cycle efficiency. The plant operates for
8,000hr/y and electricity costs $0.06/kWh.
A. $110,000/y C. $150,000/y
B. $98,000/y D. $75,000/y

Qc Tc 263.15
COP= = = =4.7845
W Th−Tc 318.15−263.15

@Actual:
1.2 MW∗1000 kW
4.7845∗0.8= ;W =0.3135 =313.5124 kW
W 1 MW

kW∗$ 0.06
∗8,000 hr
kWhr
Annual cost=313.5124 =$ 150,485.9442/ yr
yr