Question

Summary
A decision must be made regarding the process for manufacturing cyclohexylamine. Given the proposed process flow diagram, equipment costs and manufacturing costs, determine if this investment will exceed the company’s target of 15% return. Determine optimal sizing of equipment, where appropriate, to maximize the return. Evaluate the profitability of an alternative design that renders the product stream saleable directly. Use 30% for the taxation rate.

Requirements
1) A fixed capital investment of $3.18 MM is required to construct a facility for producing cyclohexylamine (CHA). This facility requires no land, but a working capital level of 32% of the fixed capital investment is required for startup. The facility is expected to require one year to construct and startup, and last for 10 years. Management will approve construction only if it is cost justified.
2) Profitability analysis for this facility should be based on an initial market penetration for CHA of 8 million kilograms per year with a growth rate of 2.5% per year. CHA is worth $2.60 per kg, however, manufacturing costs are estimated at $2.164 per kg.
3) The process includes a high-pressure reactor constructed of 316L stainless steel. It may be possible to use a reactor constructed of carbon steel instead. The choice of material of construction should be based on each reactor’s useful service life and cost of replacement given the current rate of return target.
4) Company policy requires all new projects to exceed a 15% rate of return.

Discussion/Background
A new facility for the production of cyclohexylamine (CHA) has been proposed. The facility is capable of producing 8,000 metric tons per year (8 million kg per year) of finished product. The facility include a storage tank for the raw material aniline, and intermediate storage tank and a finished product storage tank; one high-pressure reactor; a filter; a distillation column; and transfer pumps. Total equipment costs are estimated to be $222,600 and the total fixed capital expenditure is estimated to be $3.18 MM. The new facility is to be constructed in an existing part of the plant, thus there is no land investment. Working capital to start this process is estimated to be 32% of the fixed capital expenditure. Construction time is estimated to be one year, with startup shortly thereafter. The currently accepted method of calculating equipment depreciation is double declining balance with an expected equipment life of 8 years.
Manufacturing costs are estimated at $2.164 per kg of CHA. This includes costs for raw materials, labor, utilities and waste treatment. The capacity of the plant is approximately 8 million kg per year, with an expected growth rate of 2.5% per year. CHA product is worth $2.60 per kg over the life of the process, which is expected to be 10 years after startup.

The process involves a very expensive reactor. It is constructed of 316L stainless steel (SS) and has a pressure rating of 75 bar. Management has requested that an alternative reactor be considered, one constructed of carbon steel.

At this pressure rating, the reactor has an average metal thickness of 30 millimeters. Both aniline and CHA are mildly corrosive toward 316L SS; historical data and outside consultants have suggested a corrosion rate of 0.35 mm per year. The corrosion rate of CHA toward carbon steel is approximately the same 0.35 mm per year. Aniline, however, has a documented corrosion rate of 2.5 mm per year when in constant contact with carbon steel. A reactor has reached the end of its useful service life when the metal thickness falls below 70% of its original thickness.

Design engineers must determine which material of construction presents the least cost and make appropriate recommendations.

For any investment to be approved, it must exceed the company’s target of 15% return.

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Reactor Information
Reactor Cost 222,600.00 $
Wall Thickness 30.00 mm
Corrosion Rate 0.70 mm/yr
Reactor Life 10 yr
Thickness (%) at Reactor Life End 77%...

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