3. CAPITAL INVESTMENT COSTS


3.1 Introduction

3.1.1 Definitions

3.2 Fixed Investment

3.2.1 Pre-project study and analysis expenses
3.2.2 Main equipment
3.2.3 Equipment installation
3.2.4 Piping (installed)
3.2.5 Instrumentation and control
3.2.6 Electrical installation
3.2.7 Construction (including services)
3.2.8 Auxiliary services
3.2.9 Land

3.3 Estimate of Fixed Investment

3.3.1 Estimate of the cost of equipment and installations
3.3.2 Methods of estimating fixed investment
3.3.3 Level of accuracy in estimation by factors

3.4 Investment Costs for Fishing Vessels
3.5 Investment Costs for Fish Containers
3.6 Investment in Fish Plants
3.7 Working Capital

3.7.1 Stock of raw materials
3.7.2 Products being manufactured
3.7.3 Semi-finished or test products
3.7.4 Finished products
3.7.5 Stock of spare-parts and operational materials-in stores
3.7.6 Cash
3.7.7 Outstanding bills or credit to buyers
3.7.8 Credit from suppliers

3.8 Estimating Working Capital


3.1 Introduction

When analysing a project to build a new fish processing plant, expanding or renovating an old one, or changing an existing process or line, the primary and most important decision regards the various investment possibilities and, eventually, deciding whether or not to invest.

Decisions on investments are based on the profit and sustainability of the technical alternative chosen and on the capital available or borrowed. Variables affecting profit and sustainability are manifold and usually fall into three general interrelated groups: market, investment and costs.

Market analysis will help to establish the probable amount of fishery products to be sold, and this information will help determine the minimum plant capacity. In turn, plant capacity is directly related to investment and this influences the cost of production. As a general principle, all feasibility studies are based on an early market survey which will provide the answers to the following questions:

  1. How much can be sold? (With a minimum of 5 years projection from the anticipated start-up date of industrial activities)

  2. At what price should the product be sold?

The capacity of the project can be determined from the above and studies can then be undertaken which will allow a decision to be made on whether or not to invest. In the case of existing plants, investment analysis is necessary to determine the fixed costs of each product; in turn, knowledge of the capital costs of the main equipment is useful in technical and economic studies of repairs and/or replacements.

3.1.1 Definitions

The total amount of money necessary to put a project into operation is known as "Capital investment costs". This investment can be made through in-house capital, credit from national and international financing agencies, and from suppliers. The total capital required to complete and operate the project is composed of two parts: 

  1. FIXED CAPITAL (IF) which is the amount of money necessary to completely construct a processing plant with auxiliary services, and to bring it to the point of start-up production. It is basically the total value of all the assets of the plant.

Fixed assets can be tangible or intangible. Tangible assets comprise machinery (including the cost of assembly), buildings, auxiliary installations, etc., and the intangible assets include patents, technical knowledge, administration expenses, operation, start-up costs, etc. 

  1. WORKING CAPITAL (Iw) which includes the capital resources necessary for the plant to operate at the levels forecasted in the technical and economic studies, once it has been installed and normal operations begin.

The amount of this capital varies within very wide limits, depending on the market for which the products are intended, the characteristics of the process and the conditions established by the source and availability of raw materials.

3.2 Fixed Investment

Fixed capital is usually divided into the following components:

A. Direct Costs B. Indirect Costs
  1. Pre-project study and analysis expenses
  2. Main equipment
  3. Equipment installation
  4. Piping (installed)
  5. Instrumentation and control

  6. Electrical installation

  7. Construction (including services)

  8. Auxiliary services

  9. Land and land improvement

  10. Starting-up costs

  11. Interest during construction

  1. Engineering and Supervision

  2. Construction expenses

  3. Contractor fees

  4. Contingencies

Each of these components can be estimated separately, and its magnitude will vary considerably according to the nature of the project. These components of fixed investment are briefly described below.

A. Direct Costs

3.2.1 Pre-project study and analysis expenses

Preliminary economic studies are usually performed before deciding on or supporting construction of a project; these include investigative travel, market surveys, laboratory and pilot plant studies, etc. However, the procedure for charging these costs varies from project to project.

In the case of public utility projects, for example, the Government does not usually add these expenditures to the total costs of the project and regards them as unrecoverable promotion costs. All the resources assigned to a project must be considered as part of its cost, including those incurred at the research stage and pre-project costs.

3.2.2 Main equipment

In some cases, the pro-forma invoices of the equipment only include their intrinsic value, and in others, the value of the equipment after installation. Where it includes the value of the installed equipment, components (2) and (3) can be calculated together and include all complementary installations. Where equipment or materials have to be imported, details will be given in terms of FOB (equipment price at port of origin), CIF (price including freight and insurance) and at the utilization site (import expenses, freight, etc.).

The equipment and machinery used during the assembly and which can be used in the production process must also be included. The value can be found by depreciating the goods according to use, incorporating only the resulting residual value (see the concept of depreciation and residual value in Chapter 4).

3.2.3 Equipment installation

If this component is dealt with separately, provision must be included for installation of imported equipment. The cost of installation will often include payment of qualified expatriate personnel. This is convenient for the experience that the personnel of the supplier company should have, and because, in many cases, equipment suppliers will only honour their guarantees if the equipment is assembled, adjusted and started-up by their own personnel or by technicians authorized by them.

When no other values are available, 20% of total equipment cost may be used in order to estimate installation cost.

3.2.4 Piping (installed)

In many estimating methods, this component is calculated separately from the rest of the equipment. In a detailed estimate, calculation of the cost of pipes is made with a diagram of the pipes and their siting. Piping costs can vary greatly in the fishery industry, from low to relatively high values.

Piping in the fishery industry is utilized, for instance, for the purpose of conducting water (fresh and sea water), brine, refrigerants (e.g., ammonia), compressed air, sewage and liquid effluents, hydraulic fish transport, steam, edible oils, sauces and special gases (e.g., CO2 or mixtures for MAP - modified atmosphere packaging).

3.2.5 Instrumentation and control

This component includes all auxiliary equipment and instruments for controlling and recording the different variables at each stage of the process; it will increase with the application of HACCP and HACCP-based methods in the fishery industry.

3.2.6 Electrical installation

The costs involved in electrical installations consist mainly of labour and materials necessary for supplying power and lighting to the process, while the costs for illuminating the service buildings are normally included in the cost of auxiliary services.

3.2.7 Construction (including services)

Cost of construction includes the expenditure on labour, materials, and supplies needed for the construction of all buildings connected to the plant. They include plumbing costs, electrical installation, ventilation, air conditioning, and similar building services. The cost of constructing a fish plant usually varies according to the country and the site of the plant.

Table 3.1 shows international values for the cost of construction according to country and type of process. When no other data are available building requirements can be estimated at 150 m2 per ton of raw material daily processed.

Table 3.1 Cost of Construction of Fish Plants  

Type

US$/m2

Country

References

Fish Plants

200-250

Argentina

 
 

100-150

Brazil

Vaaland & Piyarat, 1982

Building for Freezing

97.8

Tropical Countries

Street et al., 1980

Buildings for fish production first category, with offices, buildings for storage sinks, etc.

250-350

UK

Myers, 1984

Construction with sinks and a few offices

150-250

UK Myers, 1984

 

Sheds and other types of open simple buildings

100-150

UK Myers, 1984

 

Dry processing, building

75

African Countries

Waterman, 1977

Canning building

80-100

Indonesia

Bromiley et al., 1973

 

Type, Capacity

US$ '000

Country

References

Fish plants  

Tropical Countries

Shaw, 1976

1-5 t raw material/day

30-60

   

6-20 t raw material/day

40-90

   

21-50 t raw material/day

65-190

   

51-100 t raw material/day

100-240

   

3.2.8 Auxiliary services

The accepted definition for auxiliary services for a process are the structures, equipment and services not directly involved in the process. Normally, these include equipment for the supply of steam, water, electricity, compressed air and fuel. Some of these services can be bought from other companies, in which case they are considered part of production costs and are not included in investment calculations. Waste disposal equipment, fire extinguishers, cafeteria, etc., are also usually included in the cost for services.

3.2.9 Land

The cost of the land depends on its location and can vary by a 30-50% cost factor between a rural area and a highly industrialized one. The value of land does not decrease with time and is therefore not included in fixed investment when annual cost of depreciation is calculated. Although land does involve capital investment, it is usually preferred to include in fixed capital only those items for which depreciation is allowed by law, thus excluding land. In average, land costs for industrial plants amount to 4-8% of the purchased equipment cost or 1-2% of total capital investment (Peters and, Timmerhaus, 1978).

3.2.9.1 Land improvement

The part of the investment which is used for land improvement includes the cost of materials for fences, levelling of the land, roads, parking, and other similar costs.

3.2.10 Starting-up costs

There is a period between formal completion of construction and commencement of normal production, "starting-up", and which can last from a few weeks to several months. Obviously, a series of costs are incurred during this period. They can be divided into two main groups.

While the first are always included as fixed capital and as such, depreciate during the plant's useful life, there is no single criterion for the second. Depending on the accounting philosophy of the business, they can also be capitalized, or considered abnormal operational costs and charged to the losses component. Although in this last instance they are not considered in the economic evaluation of the project. However, the general tendency is to reduce starting-up costs as much as possible, by prevention at design stage.

3.2.11 Interest during construction

Generally, two situations can be established: a) when the capital required for the development of the project is one's own, or b) when some of the funds come from external sources (bank credit). In the latter instance, the interest is compounded from the moment the credit is received until the completion of construction. This interest will be added to the loan, and the total will make up the investment component.

B. Indirect Costs

3.2.12 Engineering and supervision

These expenses include not only payment for the technical and administrative services required to guide and administer the project during construction, but also all the engineering work and blue prints necessary to prepare final construction plans and specifications in order to bid for or contract various jobs or equipment.

3.2.13 Construction expenses

These expenses are necessary for the smooth running of plant construction. They normally include field engineering (inspection, location of equipment, etc.) supplies, construction equipment, and temporary services.

3.2.14 Contractor fees

These vary according to the situation and can be nil when the same firm is in charge of construction and setting-up of the project.

3.2.15 Contingencies

This component covers unforeseen incidents. The amount varies and depends on the precision of the estimate.

3.3 Estimate of Fixed Investment

Estimating the cost of a project can vary from a quick estimate to a carefully prepared detailed calculation using a complete flow chart, with specifications, depending on how much is known about the product and how much time and effort are available for the estimate.

3.3.1 Estimate of the cost of equipment and installations

There is a large amount of literature on the cost of equipment and construction of plants. This literature is valuable for the process engineer, but must be used wisely (as in the majority of cases the data on costs are published without any explanation of from where they were derived). Two factors must be taken into consideration:

3.3.1.1 Cost indexes

A problem usually to be faced by whoever does the estimate is that the available information on the cost of similar equipment or plants, is usually out-of-date, and has to be adjusted following changes in economic conditions over time. This updating can be done through the use of the cost indexes.

A cost index is a number showing the ratio between the price of goods at time 't' and the price of the same at time 't base'. If a specific date can be given for a past price, present cost can be determined according to the following formula:

Current cost = Original cost x Current index / Index at time of original cost         (3.1)

Cost indexes can be used to make a general estimate, but none takes account of all the factors, such as specific technological advances or local conditions. The most common indices allow for a more precise estimate if the period involved is less than 10 years. Many types of indexes are published regularly. Some can be used for the estimation of costs, others are applied specifically to manpower and specific areas such as construction, materials, etc. For instance, in Argentina, the most accessible indexes are those published by:

There are also external publications which contain equipment indexes, such as those published periodically in Chemical Engineering for Processing Equipment (Marshall & Stevens Indexes) and materials, now renamed Marshall and Swift Index. A complete description of these indexes can be found in Stevens (1947).

Other indexes are the Engineering-News Record Indexes for construction, the Nelson Index for refinery construction, etc. Similar indexes may be found in most countries. However, one of the current difficulties in developing countries is the scarcity or complete lack of reliable indexes.

Reliable cost indexes give an indication of the degree of development of a country. In most developed countries some indexes are up-dated precisely even daily or at least weekly. However, in others up-dating is done monthly, yearly or not done at all. In extreme situations, usually compounded by lack of statistics (e.g., fish landings), investment, particularly large investment, becomes very cumbersome and risky.

If indexes are not available, it is advisable to take values and indexes from the country where most of the equipment will be imported.

3.3.1.2 Cost-capacity factor

In general, costs do not rise in strict proportion to size. Nevertheless, the costs of a plant or equipment can be estimated when data are available for a similar project, but of different capacity to the one desired, utilizing the following relationship:

I2 = I1 x (Q2 / Q1)x                                         (3.2)

where:

I2 = investment desired for capacity Q2

I1 = known investment for capacity Q1

The exponent x in the equation (3.2) is known as the cost-capacity factor (Chilton, 1950). Its average value tends to be 0.6 and for this reason, the relationship is also known as the six-tenths factor rule. However, 0.6 is an average value and its range varies from values lower than 0.2 to more than 1.0.

Tables giving values of this factor, for chemical plants and equipment, can be found in the literature (Happel, 1958; Bauman, 1964). If the total cost is plotted against capacity on a log-log graph, a straight line will be obtained with a slope equal to cost-capacity factor. However, this does not always happen, and curves might be obtained which show the presence of two or more cost-capacity factors, each covering a certain range and providing better results than an overall average factor.

Regarding the fishery industries some values of coefficient x are listed in Table 3.2, and examples of correlations, related to equipment, are shown in Figures 3.1, 3.2 and 3.3, other equipment costs are listed in Appendix C1 (Zugarramurdi, 1981a).

Table 3.2 Cost-capacity Factors for Equipment in Fish Plants  

Equipment

Range

Cost-capacity Factor

Basic Size

Basic Cost (Year)

Rapid Evaporating

Condensers

80 000-320 000

0.57

140 000 kcal/h

US$ 5 000 (1989)

Evaporators

12 000-24 000

0.67

12 000 kcal/h

US$ 3 000 (1989)

Plate

 

 

 

 

Freezers

10-18 t/day

0.31

18 t/day

US$ 28 000 (1989)

Liquid

 

 

 

 

Freezers

2-8 t/h

0.869

8 t/h

US$ 702 600 (1984)

Continuous

Spiral Freezer

0.5-1.5 t/h

0.514

1.5 t/h

US$ 272 220 (1984)

Single Belt

Continuous

Freezer

0.2-0.6 t/h

0.583

0.6 t/h

US$ 130 560 (1984)

Vertical

 

 

 

 

Freezer

53-14 t/day

0.13

14 t/day

US$ 23 250 (1984)

Blast

Freezers

5-20 t/day

0.31

5 t/day

US$ 10 000 (1989)

Cold

Stores

500-10 000 m3

0.628

2 000 m3

US$60 000 (1984)

(stowage rate: 10 m3/t)

Flake Ice

 

 

 

 

Machines

20-30 t/day

0.38

20 t/day

US$18 000 (1989)

Bone Separator

Baader

1 100-3 500 lb/h

0.65

1100 lb/h

DM 50 000 (1990)

Bibun

4 000-5 700 lb/h

1

4000 lb/h

US$ 16 000 (1977)

Paoli

400-2 200 lb/h

0.69

1100 lb/h

US$14 800 (1977)

 

Figure 3.1 Cost vs Capacity for Quick Evaporating Condensers (part of refrigeration equipment)

Figure 3.2 Cost vs Capacity for Evaporators (part of refrigeration equipment)

 

Figure 3.3 Cost vs Capacity for Fish Bone Separator

The value of the cost-capacity factor for refrigeration equipment, in freezing plants with capacities of 10-100 t/day is 0.795, while that for processing equipment is 0.868. In Argentina, the range is very wide, given that when mechanized plants increase capacity, the amount of equipment increases, while the manual plants increase their refrigeration equipment.

Regarding coefficients for whole plants, cost-capacity factors for different types of fish plants, in both developing and developed countries, are given in Table 3.3.

Evidently, there are substantial differences depending on the location of the plant and the processing technology, but it can be concluded that for fish plants (with the exception of fishmeal plants) a 0.85 factor, such as that proposed for solid processing plants, is adequate (Wilson, 1978), while the cost-capacity factor for fishmeal plants is about 0.6.

Table 3.3 Cost-capacity Factors for Fish Plants  

Type of plant

Range (t/day)

Capacity factor

Size (t/day)

Basic cost
(US$ '000)

Country

Calculated from

Canneries 

8-35(°)

0.89

11.3

1 100

Argentina

(Cerbini & Zugarramurdi, 1981a)

Freezing 

10-100(°)

0. 6-0.81*

20

2500

"

(Zugarramurdi & Parin, 1988)

Average for other

           

Food Freezing Plants(°)

 

0.875

20

3 270

Several countries

(Parin et al, 1990)

Ice Plants

           

Flake 

2-200(°)

0.895

50

420

UK

(From Myers, 1984)

Tube 

10-200(°)

0.646

50

460

"

"

Plate 

2-200(°)

0.960

50

400

"

"

Fishmeal Plants

           
 

20-100(')

0.5

66.7

806

Brazil

(From Vaaland & Piyarat, 1982)

   

0.459

n/a

n/a

Canada

(From Mensinkai, 1967)

 

2-200(')

0.5

20

400

Tropical Countries

(From Shaw, 1976)

without concentration of stickwater

15-30(')

0.60

25

235

Europe

(From Atlas, 1975)

with concentration of stickwater

60-250(')

0.618

60

455

Europe

"

FPC, Biological

50-1000(')

0.585

50

1 350

USA

(From Almenas, 1972)

FPC, Alcohol extraction**

50-1 000(')

0.502

50

1 570

USA

 

20-68(')

0.477

68

1 757

Senegal

(From Vaaland & Piyarat,1982)

*t product

't raw material

*(0-100% according to the degree of mechanization)

**Isopropyl alcohol

3.3.2 Methods of estimating fixed investment

3.3.2.1 Universal factor method

Total fixed capital can be calculated from the current sale price of the product and the annual capacity of the plant (Woods, 1975). Fixed investment is calculated as follows:

I = V × Q / W                     (3.3)

where:

I = Investment
V = Sale price per unit produced
Q = Annual capacity of the plant, expressed in the same units of production as V
W = Universal Factor

Table 3.4 shows the values for W. For the application of this method, sale prices and range of capacities in the fishery industry are given in Table 3.5.

Table 3.4 Universal Factor Values

General Application 

1.0

Processes where main costs are raw materials or manpower 

1.4

Range 

0.2- 8.0

Table 3.5 Average Values of V and Q in the Fishery Industry

Product

Sale Price per unit (V)

Range of Q (1)

Country

References

Fresh sole

US$ 1 9281/t

914 t/year

USA

(Georgianna & Hopn, 1986)

Frozen hake

US$ 1 470/t

5-20 (t/day)

Argentina

(1990) This work

(Skinned, boneless fillet block)

       

Frozen sardines

US$ 0.46/kg

30 t/day

Indonesia

(Haywood & Curr, 1987)

Frozen fillet

US$ 2 874/t

3 000 t/year

Senegal

(Jarrold & Everett, 1978)

Argentinean sardines in oil, 170 g can

US$ 0.6-0.7/can

15- 1 00x 103 cans/day

Argentina

(1989) This work

Canned sardines

US$ 0.46/kg

120 t/day

Indonesia

(Haywood & Curr, 1987)

Canned tuna

US$ 2 704/t

5 500 t/year

Senegal

(Jarrold & Everett, 1978)

Salted anchovy 

 

(t/season)

   

drums x 200 kg 

US$ 1.3-2.0/ka

40-4000

Argentina

(1989) This work

Fishmeal 

US$ 0.1/kg

1 200 t fish/year

Indonesia

(Haywood & Curr, 1987)

Fishmeal 

US$ 312/t

25 000 t/year

Senegal

(Jarrold & Everett, 1978)

Note: (1) In the same units as V

The value of this method is its simplicity. This advantage is lost if the analyst tries to find in the list of values for W that which corresponds to the particular case in mind. Thus, the term 'Universal Factor' is used since the W factor is supposed to be applicable to any process. In its favour is the little time it takes to make the estimate (5 minutes) but there is a very wide uncertainty range in the result (between -70% and +200%).

3.3.2.2 Lang factor method (fL)

This technique is frequently used to estimate the order of magnitude of investment. It establishes that the costs of an industrial plant can be obtained by multiplying the costs of the basic equipment by a factor (Jelen and Black, 1983). Two factors are used: one to estimate fixed investment and the other to estimate total investment. Average values of these factors can also be found in the literature. Application is very simple:

Estimated investment = fL x (Cost of basic equipment)

This method is used when little or no information is available on design. It is a preliminary approximation (±20-30%). The method was first applied in the chemical industry and the general factors for this type of industry are presented in Table 3.6.

Table 3.6  fL Factors to Estimate IF and IT for Chemical Plants (after Arnold and Chilton, 1963)

Type of Plant 

fL for IF

fL for IT

Solid processing 

3.9

4.6

Solid-liquid processing 

4.1

4.9

Liquid processing

4.8

5.7

For fish processing plants, 1. and IT factors calculated from published data are given in Table 3.7 for artisanal fish processing and in Table 3.8 for industrial fish processing.

Table 3.7 Average fL Factor to Estimate IF for Artisanal Fish Processing  

Type of Process

Average Factor

Canning

2.485

Freezing

2.6

Dry and dry salting

2.43

Fishmeal and biological fish silage

2.265

A marked difference is observed in Tables 3.6, 3.7 and 3.8 between the factors used for fish plants and chemical plants. This is probably due to a larger auxiliary infrastructure in chemical plants, not often existing in food factories.

On the other hand, mechanized plants in industrialized countries, with a high proportion of equipment costs, show a factor which is substantially lower for the same type of process. It is also noted that this difference is not compensated for by lower construction costs in developing countries (see Table 3. 1).

Table 3.8  fL Factors to Estimate IF and IT for Fish Processing Plants  

Type of Plant

Fish Plants

Country

Data calculated

 

fL for IF

fL for IT

   

Canning, Manual

2.5

3.1

Argentina

 

"

2.47

2.97

Indonesia

(From Haywood & Curr, 1987)

Mechanical

2.05

 

Norway

(From Myrseth, 1985)

Freezing

2.6

3.3

Argentina

(Parin et al, 1990)

Manual

2.29

 

Tropical Countries

(From Street et al., 1980)

Manual, shrimp

2.93

 

UK

(From Graham, 1984)

Mechanical, shrimp

2.11

 

USA

(From Bartholomai, 1987)

Mechanical, catfish

2.31

 

USA

"

Dry Salting

2.2

 

Brazil

(From Vaaland & Piyarat, 1982) 

 

2.67

 

African Countries

(From Waternian, 1977)

FPC

1.64

 

Senegal

(From Vaaland & Piyarat, 1982)

 

1.59

 

USA

(From Almenas, 1972)
 

2.89

 

Brazil

(From Vaaland & Piyarat, 1982)

3.3.2.3 Estimation methods by factors

Using this method, it is possible to extrapolate the cost of a complete system from the cost of the main equipment of the process (Chilton, 1949); and to produce an estimate of the total fixed investment within an error of 10-15% of actual value, if appropriate factors are used. It is advisable to adjust the experimental factors pooling results from different and successive cases.

The data for this method can be used in developing cost equations in order to optimize stages of a particular process. The starting point of this method is the estimation of the investment of main equipment of the process, which will be called IE. It can be observed that the costs of other essential items needed to complete the system can be correlated with investment in main equipment and that total investment can be estimated by applying experimental factors to the basic investment IE.

The equation (3.4) is thus obtained, in which the experimental factors f, are obtained from a study of various similar processes.

where:

IF = Fixed investment for the entire system

IE = Costs of main equipment once installed

fi = Multiplication factors for estimation of direct costs, such as piping, instrumentation, buildings, etc.

fIi Multiplication factors for estimating indirect costs, such as engineering fees, contractors, contingencies, etc.

Table 3.9 presents typical data compiled from analysis of existing chemical processes (Rudd and Watson, 1968), along with calculated values for fish plants. It is interesting to observe that investment in main equipment can be as low as a half, a third or sometimes a quarter of total investment, depending on the nature of the process. When the auxiliary services have a general and continuous use in other processes within an industrial complex, an internal price based on the quantities to be consumed is generally charged to the project.

When this quantity cannot be accurately measured, a factor is included, usually an annual fee, proportional to IF. At the other extreme is the case of the plant totally isolated from any industrial complex ("grassroots") which must provide all its auxiliary services and whose investment is included in IF.

It is emphasized that, due to the enormous costs involved in supplying auxiliary services, linking up with state terminals, loading and unloading terminals, transport and other necessary services in a completely undeveloped site, the total fixed investment necessary for a new plant located in a remote area, can be almost 100% greater than that of a plant built near to an already existing one.

Figure 3.4 shows the relationship between the fixed investment for chemical and petrochemical plants compared with food processing plants (Parin and Zugarrainurdi, 1994). Clearly, for a particular capacity of production, there is a difference in the order of magnitude between both types of plants.

Table 3.9 Factors Required to Estimate Total Investment in Fish Plants  

Cost of Installed Processing Equipment

   

Experimental Factors as a percentage of IE

fi

Data calculated from

1 Piping for the process

   

Chemical plants (solid process)

0.07-0.10

(Rudd & Watson, 1968)

Canning, Argentina

0.03

 

Freezing, Argentina

0.05

(Parin et al., 1990)

Shrimp, USA

 0.056

(Bartholomai, 1987)

Catfish, USA

0.023

"

Salting and Dry-salting, Argentina

0.01

 

Fishmeal, Argentina

0.05

 
     

2. Instrumentation

   

Chemical plants (little automation)

0.02-0.05

(Rudd & Watson, 1968)

Canning, Argentina

0.01

 

Freezing, Argentina

0.03

(Parin et al., 1990)

Salting and Dry-salting, Argentina

0

 

Fishmeal, Argentina

0.01

 
     

3. Structures, Buildings

   

Chemical Plants (open structure)

0.05-0.2

(Rudd & Watson, 1968)

(half open structure)

0.2-0.6

"

(closed structure)

0.6-1.0

"

Canning, Argentina

0.6

 

Norway

0.63

(Myrseth, 1985)

Tuna, Indonesia

0.607

(Bromiley et al., 1973)

Tropical Countries

0.43

(Edwards et al., 1981)

Freezing, Argentina 

0.6 

(Parin et al., 1990)

Tropical Countries

0.43

(Street et al., 1980)

Shrimp, USA

0.88

(Bartholomai, 1987)

Catfish, USA

 0.76

 

UK

0.49

(Graham, 1984)

Salting, Argentina

0.6

 

Drying, African Countries

0.71

(Waterman, 1977)

Brazil

0.4

(Vaaland & Piyarat, 1982)

Fishmeal, Argentina

0.5

 

FPC, USA

0.1

(Almenas, 1972)

Senegal

0.44

(Vaaland & Piyarat, 1982)

Brazil

0.4

 

Total Physical Cost

 

Average direct cost factors for,

   

Canning

1.61

 

Salting and Dry-salting

1.57

 

Fishmeal

1.51

 

Freezing

1.69

 

(*) see section 3.2.3

   
     

Engineering and Construction

   

Chemical plants

0.2-0.35

 

Fish plants, Argentina

0.1

 

Tropical Countries

0.1

(Edwards et al., 1981)

     

Size Factor

   

Small commercial unit, chemical plants

0.05-0.15

 

Fish plants, canning, Argentina

0.1

 

freezing, Argentina

0.1

 
     

Contingencies

   

Chemical plants

0.1-0.2

 

Fish plants, Argentina

0.1

 

Tropical countries

0.1

(Edwards et al., 1981)

     

Indirect Cost Factors

 
     

Average indirect cost factor

1.3

 
     

Total Fixed Investment

 

Total experimental factors

fT  

Canning

2.51

 

Freezing

2.63

 

Salting and Dry-salting

2.45

 

Fishmeal

2.36

 

Figure 3.4 Investment for Chemical and Food Plants

Ref.: 1. Sardines, canned (Norway); 2. Lemons, packaging (CA, USA); 3. Sardines, canned (Argentina); 4. Green peas, canned (CA, USA); 5. Lima beans, canned (CA, USA); 6. Pears, production (CA,USA); 7. Green peas, frozen (CA, USA); 8. Lima beans, frozen (CA,USA); 9. Frozen spinach (CA, USA); 10 Polyethylene (USA); 11. Alkylation (USA); 12. Acetic acid (USA); 13. Ammonia (USA); 14.Methanol (USA); 15. Reforming (USA); 16 Nitric acid (USA); 17. Cracking (USA); 18. Ammonium Nitrate (USA); 19. Polymerization (USA).

Note: bbl (US barrel) = 0.119 m3

3.3.3 Level of accuracy in estimation by factors

Errors in these methods are mainly due to: factors of scale, the extension to cases different from those from which the factors used were estimated, and variation of the relationship between equipment and plant costs according to equipment maker and equipment quality. Precautions must be taken with respect to errors introduced in the use of factor methods.

These errors include that of trying to correlate costs using a single independent variable (a correlation error), that of presenting the data by a simple exponential relationship (linear correlation error), that of not considering technological or learning behaviour in the correlations, and that of special circumstances. Each will be analysed separately.

A compromise between simplicity and accuracy is sought. In general, the independent variable which may minimize the error is selected. However, this simplification can introduce significant errors.

In Figure 3.3, cost data for bone separators are presented as the most significant independent variable which, in this case, is processing capacity per hour. The difference between the curves shows the difficulty of presenting costs by a simple correlation and the error involved in such simplification. This difficulty is aggravated when comparing data from various manufacturers and for a greater number than used in the example.

The second type of error is due to the attempt to correlate the data in a simple exponential form, such as in equation (3.3), and in the approximation done by the freezing plants in Figures 3.5 (Zugarramurdi and Parin, 1988) and 3.6 (Cerbini and Zugarramurdi, 1981b).

 

Figure 3.5 Investment vs Plant Capacity for Frozen Fish Plants with Different Levels of Mechanization

 

Figure 3.6 Relationship between Investment and Capacity for Mechanical Fish Filleting and Freezing Plants

"Tails" or extremes of production capacity are not usually correlated. They are taken as the maximum and minimum sizes of equipment or plants for usual production techniques. In this case, the "tails" are replaced by size restrictions. An increase in capacity over this maximum is obtained by duplicating the plant or equipment.

For equipment smaller than the minimum size, only the minimum size is obtained subject to appropriate modifications. In Figure 3.7, for canning plants, it is observed that the investment values for the smallest plants deviate from the estimate line, indicating that sizes smaller than the minimum cannot be extrapolated without introducing significant errors (Parin and Zugarramurdi, 1987).

 

Figure 3.7 Fixed Investment vs Canning Plant Capacity

The third type of error concerns technological advances. When new methods of manufacturing or constructing equipment are developed, the "old" correlations are usually discarded. Given that many correlations are updated by inflation indices, care must be taken that the correlation refers to current manufacturing techniques. The error of special circumstances occurs since correlations can be based on a manufacturer's price list, on a company's actual purchase price, or a mixture of the two.

The actual sale price depends on these factors (on a supply and demand basis), i.e., how anxious the manufacturer is to sell the equipment and the previous business relationship between manufacturer and buyer. In the fishery industry there is also the possibility of purchasing suitable second-hand equipment (adjusted and/or refitted) which allows for a reduced investment; however, estimations in such cases, based on factors presented in Tables 3.7 and 3.91, will yield investment overestimates. The error will depend on the quantity of second-hand equipment utilized. Exchange rates, industry promotion policies and type of technology may also distort the correlations.

Some equipment (e.g., ice plants) may be cheaper if produced in a developing country (e.g., Argentina, Brazil, China, India). This cannot be generalized as the situation will change with time (and the same equipment becomes more expensive). The best advice is to use the methods presented here as starting points and refine the estimate according to local conditions.

3.4 Investment Costs for Fishing Vessels

A fishery is a system composed of different activities such as capture, processing and marketing of fish, which operates within certain socio-economic and political contexts and which interacts with other sectors of the economy. In accordance with the characteristics discussed in the Introduction, two major economic groups are considered: small-scale artisanal fisheries and large-scale industrial fisheries. Table 3. 10 gives cost values for fishing vessels in artisanal as well as industrial fisheries. The values in Table 3. 10 were plotted on the graph in Figure 3.8, and a cost-capacity factor of 0.65 was obtained for vessels.

 

Figure 3.8 Investment Costs for Fishing Vessels

Table 3.10 Investment Costs for Fishing Vessels  

Type

 

Size

 

Cost

Country

References

 

Length(m)

HP

t

(US$ 1000)

   

Coastal boats

18.5-21

380

40

200-250

Argentina

(Parin et al., 1990)

Trawler

33

500

182

500

Argentina

(Otrera et al., 1986)

Canoe (without motor)

10 

0.075

1.9

Senegal

(Jarrold & Everett, 1978)

Canoe (without motor)

4-5

 -

0.020

0.163-0.285

Paraguay

(FAO, 1991)

Canoe (with motor) 

14

20

19.15

Senegal

(Jarrold & Everett, 1978)

Purse Seiners

20

300

15

355.2

"

"

Trawler

40

1 000

50

2220

"

"

Factory Ships

50

1 700

540

4400

"

"

Tuna Purse Seiners

55

1 800

175

6216

"

"

Catamaran,

           

for sardine

3-4

 -

0.009

0.230

India

(Kurien & Willmann, 1982)

for shrimp

3-4

-

0.008

0.210

"

"

for anchovy

5-6

-

0.009

0.230

"

"

Canoe

7-15

-

0.173

0.972

 India

"

Boats

12

100-125

-

23

Bangladesh

(Eddie & Nathan, 1980)

 

12

22

-

"

"

Large trawlers

-

-

100-600

120-595

Peru

(Engstrom et al., 1974)

Purse Seiners

13

20

-

35.65

Indonesia

(Haywood & Curr, 1987)

 

13.72

102

34.1

108

India

"

 

20.5

220

12.6

111

Thailand

"

 

22

300

8.1

194.3

Morocco

"

Schooner (standard)

-

37

1.1

33

Seychelles

(Parker, 1989)

Schooner(special)

-

56

2

67

"

"

Schooner (new design)

11.6

70

2

72

Seychelles

"

Boats/RSW*

13.26

15-20

-

76.2

India

(Nordheine & Teutscher, 1980)

 

-

35

-

267

India

"

 *Refrigerated Sea Water

Small-scale artisanal fisheries generally operates in coastal marine waters in developing countries, the majority of which are located in tropical latitudes (Stevenson et al., 1982). Small-scale fisheries are characterized by a variety of fishing gear and vessels. The fishing techniques are usually labour-intensive and the types of gear used are diverse and relatively economical to operate.

The greatest determining factor for costs is the combination of boat/gear used. The magnitude of the different costs for any of these fishing combinations depends on duration of trip, distance to the fishing area, etc. Small-scale fisheries exploit many species, using a variety of boats, gear and manpower. These different fishing units or types of business have different effects on the resources, just as in their economic operation. The effective effort that each exercises on a particular species is different, as is the average size of fish that each catches.

This analysis does not assume to exhaust the subject of investment on fishing vessels which would merit a separate manual (like aquaculture and mariculture), but merely indicates that the techniques of economic engineering can also be applied to fishing vessels and gears.

The authors are also aware that in practice, within a company, separation of fishing and processing operations may not be as sharp as when the same subjects are analysed from an academic or administrative point of view. Fish technologists must also be aware of this.

3.5 Investment Costs for Fish Containers

Containers are used to handle and transport fish and other fish resources from the time of catch, storage and processing, to their consumption. In many countries, the handling of fish without adequate containers causes deterioration of 20-30% of the fish. Fresh fish loses its quality easily, and thus appropriate containers are needed to prevent contamination, physical damage and spoilage.

There is a great variety of sizes, design and construction of fish containers used throughout the world. Construction materials depend on fishing technique, vessel size, level of organization in the industry, value of catch, and very often, local tradition. Table 3. 11 shows data on investment costs for fish containers for both artisanal and industrial fisheries.

Table 3.11 Investment Costs for Fish Containers

Type

Capacity (kg)

Cost  (US$)

Useful  (years)

Country

References

Basket 

25

0.94

1-2

Ghana

(Essuman & West, 1990)

Fresh fish:

         

Palm baskets 

20-25

0.94

6-12 months

"

"

Receptacles carried on the head

         

aluminum 

20-25

8.3

5-10

"

"

plastic 

20-25

3

3-5

"

"

Dry anchovy:

         

Jute bags 

45-50

1.9

3-4

"

"

Polypropylene bag 

20-25

0.57

3-5

"

"

Wooden boxes 

16

4.2

n/a

Norway

(Brox et al., 1984)

 

30

5.3

n/a

"

"

Aluminum boxes 

12

7

n/a

"

"

 

33

25.5

n/a

"

"

Plastic boxes

12

5.5

n/a

"

"

 

33

15.2

n/a

Australia

 

Insulated containers

         

Insulated container (Metal box 70) 

70 litre

90

n/a

Denmark

 

Metallic container (Artisanal) 

144

76

n/a

Paraguay

(FAO, 1991)

Expanded polystyrene container
with wood frame and painted (Artisanal)

50 litre

25

n/a

"

"

Expanded polystyrene container 

37 litre

14

n/a

"

"

3.6 Investment in Fish Plants

Using the methods described above, it is possible to estimate, with a certain degree of accuracy, the investment necessary for a fish plant, a process line or just a process modification. In fact, the relevant literature contains no detailed calculations, but only descriptions of the main equipment and their costs, construction costs, and data on total investment, from which a global cost for other items can be estimated.

Table 3.12 compiles investment costs for fisheries plants in developing and developed. countries. An interpretation of these values will allow conclusions to be drawn.

Table 3.12 Investment Costs for Fish Plants

 

The values of Table 3.12 are plotted in Figure 3.9. In this graph, it is seen that even when some of the existing plants in developing countries are artisanal, and generally smaller than those in industrialized countries, the relationship between costs and capacities proposed earlier, still applies.

 

Figure 3.9 Investment Costs of Fish Plants (FP : finished products)

In the case of canning plants, the graphical correlation shows a cost-capacity factor of 0.868 (r = 0.9998), while freezing plants have a factor of 0.825 (r = 0.921). It results that industrial plants of varying sizes operating in different countries (conditions) show a clear correlation between investment and installed capacity, provided the same technology is used. If technology varies, there are two possible situations: when the technology is partly modified (change of one or a few stages of the process); or when the technology used to obtain the same product varies substantially. The former can be seen in Figure 3.5 where data for freezing plants are shown according to mechanical or manual processing. The same data are shown for canning plants in Figure 3.7. The second case is illustrated in Figure 3.9, at point ( ),. using the production of fishmeal at the industrial and artisanal levels.

In practice, there is a minimum limit for industrial production capacity. This limit is set by the minimum capacity of key equipment on the market. It is obvious from Figure 3.9 that the minimum scale of production requires an investment which also correlates with the maximum scales of production. Besides, these results show that minimum sized plants in developing countries, with partially modified technology, are not comparatively less expensive than large capacity plants in developed countries.

The concept of minimum size can be compared to the results of Figure 3.7 and the experience of pilot plants of institutes, in the sense that investment for minimum size plants or plants below minimum size is even greater than that which would correspond to the correlation shown in Figure 3.9. In general, this is due to the need to incorporate one or more oversized (or exceeding minimum scale) pieces of equipment. All these aspects must also be integrated into costs, as will be examined in Chapters 4 and 5.

3.7 Working Capital (Iw)

Working Capital is mainly made up of:

3.7.1 Stock of raw materials

Logically, the quantity of raw materials that must always be kept in stock depends on many factors, but mainly on:

In the case of national raw materials, an average value equivalent to 15-30 days production, at factory price, can be included in the working capital. In the case of imported raw materials, an average of 90-120 days production can be included in the working capital. The value for the raw materials will include costs for importation and transport to the factory. The current tendency is to reduce as much as possible the stock of raw materials, final products, package material, spare-parts, etc., since storage increases costs and immobilizes capital. The management technique used in this case is called "just in time".

3.7.2 Products being manufactured

This component includes the value of raw materials, services, direct manpower needed for factory production. Its magnitude depends basically on the process (continuous or batch).

3.7.3 Semi-finished or test products

These are products which still have to go through other production processes, before being placed on the market, or which are still awaiting laboratory approval. Cost can be high in industries where approval of products takes a long time.

3.7.4 Finished products

Many factors can determine the quantity of a finished product that is kept in storage. Storage of finished products in a freezing factory which only produces fillet blocks will be very different to that of a canning factory which makes a great variety of products. Similarly, there are some products which are consumed in greater quantities during particular periods of the year (for example Easter in Christian countries) while others are consumed regularly throughout the year. In the case of salted fish, the storage of salted products which must pass through a curing process (for example, anchovy), and remain stored for a long period (usually 4-6 months until shipping) are a considerable strain on the working capital, 'which at times, is of the same importance as fixed investment costs. When not dealing with a specific case and when no other data are available, 30 production days are usually taken as average storage time for finished products. As seen in section 3.7.1 the current tendency in the food and fishery industry is to reduce stocks as much as possible following the policy "just in time". The appropriate application of this policy allows for reduction in the stocks of finished material (immobilized capital), reduction in storage room capacity and hence in investment and operation costs (e.g., electricity).

3.7.5 Stock of spare-parts and operational materials - in stores

The value of the spare-parts can vary within a very high price range, especially if at the start of operations, a plant could have imported equipment from abroad, which is usually provided with spare-parts for several years' operation. From the point of view of the project, the value of the spare-parts is generally estimated as the equivalent of 1 to 3 months operation, bearing in mind the total yearly amount that has been taken. to calculate the cost of sales. A similar criterion is followed for operational materials, assigning the equivalent of a month's expenditure to working capital, which will be kept permanently in storage.

3.7.6 Cash

Cash is the amount of money in hand that must be kept available to ensure plant operation, payment for raw materials, salaries, services, etc. Usually the cash for a project is equivalent to 30 days of the total production costs minus depreciation.

3.7.7 Outstanding bills or credit to buyers

This is usually one of the most important components of working capital. Several factors exercise an influence on the calculation of its volume, but the most important is the credit conditions fixed by the market. Each business has its own policy, which can vary from 30 to 60 to 365 days. On the domestic market, it is usual to provide credit to supermarkets for fishery products; for instance, 30 days are given for canned fish in Argentina.

3.7.8 Credit from suppliers

All the previous components constitute gross working capital. It is advisable not to take into account the possible credit that might be obtained from suppliers. However, it should be considered in financial analyses of the project in order to correct the value. In the case of inputs for fish plants in Argentina, this credit is granted by fish suppliers, with a limit of 15 days for national raw material and 30-90 days for imported raw material.

3.8 Estimating Working Capital

Various methods can be used to estimate working capital, among which:

  1. Take it as 10-20% of fixed investment. Generally, 10% is used as an acceptable approximate estimate for fish industries when data are lacking.

  2. Take it as 10% of annual sales. Table 3.13 shows average percentages of annual sales for each component, the fraction of the year (decimal) during which working capital is needed, and finally, the average costs of each component as a percentage of the annual sales. It can be observed that the average working capital is approximately 10% of annual sales (Bauman, 1964).

  3. Calculate the inventory costs for one month's capacity of raw material, plus two months' capacity of finished products. Add the accounts receivable calculated on one month's sales (Woods, 1975).

Table 3.13 Calculation of Working Capital

 

% Annual Sales

Average Time

Average Costs as % of annual sales

Current Assets

     

Raw Material 

30

0.04

1.2

Finished Product 

60

0.08

4.8

Outstanding Bills 

100

0.10

10.0

Cash in Hand 

1-5

1.00

2.5

     

Total 18.5

Current Liabilities

     

Taxes

8

0.60

4.80

Salaries

14

0.03

0.42

Services

4

0.10

0.40

Freight

2

0.01

0.02

Raw material

30

0.10

3.00

     

Total 8.64

WORKING CAPITAL: ASSETS - LIABILITIES = 9.86

Example 3.1 Calculation of Total Investment for a Frozen Fish Plant

The purpose of examples 3.1 and 3.2 is to explain and give procedures for the practical calculations of capital investment. The described methods can be applied to such different technologies as freezing, canning and fishmeal plants or to plants singly at an already industrialized site, or to such different sizes as pilot plant and high-capacity units, whenever the reader should follow, understand and use the information properly. The indications of price, both for equipment and for materials, are only estimates, and a supplier whose working conditions are established will be the best source of information on this point. The reader should adapt the approach to the specific problem. Cost data vary with the date, equipment size, plant location, manufacturers' design, materials of construction, the process involved and other factors.

Appendix C1 is intended only as a guide for estimates and represent values for the sizes listed in the year indicated in the source. The six-tenths factor may be employed for general approximations at other capacities, but the user is warned that these may lead to considerable possible error. Experience and judgment can reduce the error, but accurate costs can only be obtained from manufacturers. The methods applied in the examples are not the only ones to be found in the bibliography, and the reader might be interested in looking further into other more accurate and therefore more sophisticated models. Some cases may require more detailed models. In connection with the use of published cost data, it should be emphasized that they are satisfactory only for approximate cost estimations. Where a more accurate figure is- desired, it is necessary to obtain quotations from manufacturers for the specific piece of equipment required.

1) Calculate the fixed investment for the frozen hake plant in Example 2.1 by the following methods:

  1. Lang method

  2. Multiple-factor method

  3. Cost-capacity factor for complete plant

2) Estimate working capital

3) Calculate total investment, excluding land

Answers:

1) Table 3.14 shows the main equipment (From Example 2. 1) and their delivered costs. The purchased cost of each piece of equipment (quotations from suppliers, 1991) is used to calculate fixed investment (refrigeration system not included at this stage). The term purchased equipment or delivered equipment refers to the cost of the non installed equipment delivered to the construction site. The 1. value can be compared with the estimate made through the correlation proposed by Zugarrainurdi and Parin (1988):

Major Equipment Investment in Manual Plants (Without refrigeration system) = US$ 59 485 x Q0.51 = US$ 84 709

Table 3.14  Cost of Primary Equipment  

Equipment Item 

Quantity

Delivered Cost (US$)

Whole fish weighing machine 

 

2000

Whole fish Washer 

 

13000

Sorting Table (*)

2

400

Filleting Table (*)(**)

16

3200

Inspection and Trimming Table (*)

5

3000

Fillet Packing Table (*) (w/conveyor belt)

3

2700

Fish Block Weighing Table w/scale

1

3600

Tray remover 

 

1200

Final Packing Table (*)

 

3250

Strapping Machine 

 

5800

Conveyor Belts 

 

2500

Tray Washer 

 

14000

Box Washer 

 

20000

Plastic boxes, 35 kg fish each 

40

4000

Freezing Trays 

200

6400

Fork-lift truck 

 

6000

Total delivered cost of major equipment items IE

 

91050

(*) Stainless steel

(**) The number of filleting posts calculated in Example 2.13 is 15. However, filleting tables have an even number of posts, therefore 16 posts instead of 15 is used.

The difference between the two estimates is due to changes in the prices of equipment and inaccuracies since the plant capacity deviates from the valid range (10-100 t of finished product per day). From the requirements given in Example 2. L, the freezing requirements must be calculated. Table 3.2 gives the data for applying Equation 3.2 to estimate the plate freezer and the cold store.

I plate freezer = US$ 28 000 x (2/18)0.31 = US$ 14 200

I cold store = US$ 60 000 x (60/200)0.62 = US$ 28 500

I blast freezer = US$ 10 000

Appendix C1 provides cost data for a given capacity; when no cost-capacity factor is available, the six-tenth rule can be applied.

I chill room = US$ 10 000 x (20/10)0.6 = US$ 15 200

Plate Freezer, 500 kg/load 14 200
Chill Room, 0°C, capacity: 20t 15 200
Cold Store -30°C, capacity:60 t 28 500
Blast Freezer, capacity: 5 t 10 000
Refrigeration equipment (compressors, evaporators, etc.) for production of 2 t of frozen fish blocks/day (from supplier) 70 000

US$

137 900

Investment in Major Equipment = US$ 91 050 + US$ 137 900 = US$ 228 950

  1. Using the appropriate Lang factor (From Table 3.7),
    Fixed Investment = US$ 228 950 x 2.6 = US$ 595 270

  2. With the multiple-factor method, each factor has a range of values and the professional must rely on pastexperience to decide, in each case, whether to use a high, average, or low figure. Table 3.15 shows this calculation.
    Results obtained using this procedure have shown high correlation with fixed-capital investment estimates that have been obtained with more detailed techniques. Properly used, these factoring method can yield quick fixed-capital investment requirements with accuracies sufficient for most economic-evaluationpurposes.

  3. According to Table 3.3 and Equation (3.2):
    IF =US$ 2 500 000 x (2/20)0.6 = US$ 627 970
    This value is relatively larger than the other estimates, because 2 t fall outside the valid capacity range for the cost-capacity factor given in Table 3.3. It will be considered that fixed investment amounts US$ 600 000, excluding land.

 

  1. Iw = 10% IF (From Section 3.8 a)
    Iw = 0. 1 x US$ 600 000 = US$ 60 000

  2. IT = IF + Iw
    IT = 600 000 + 60 000 = US$ 660 000

Table 3.15 Use of Factors from Table 3.9 for Capital Cost Estimation (Frozen Fish)

Item

Multiplying factor

Cost of item (US$)

Delivered equipment cost

1.00

228950

Installed equipment cost

0.20

45790

 

IE

274740

Experimental Factors as a percentage of IE

fi

 

Process piping

0.05

13740

Instrumentation

0.03

8240

Buildings

0.60

164840

0.68

186820

Total Physical Cost,

 

461560

Experimental Factors as Percentage of Total Physical Cost

fIi

 

Engineering

0.10

46 160

Size Facto

0.10

46 160

Contingencies

0.10

46 160

Total Indirect Cost,

0.30

138480

Total Fixed Investment,

 

600040

Example 3.2 Calculation of Total Investment for a Fish Canning Plant

1) Calculate the fixed investment for the canned tuna plant in Example 2.2 using the following methods:

  1. Lang method

  2. Multiple-factor method

  3. Compare with values for canning plants in Table 3.12

  4. By cost-capacity factor in Table 3.3

2) Estimate working capital
3) Calculate total investment

Answers:

1) The first step is to calculate the cost of the primary equipment. Table 3.16 shows the development of the estimate; the main equipment (from Example 2.2) and their delivered costs. The purchased cost of each piece of equipment were estimated from other similar plants in Cape Verde.

Table 3.16 Cost of Primary Equipment

Equipment Item

Quantity

Delivered Cost  (US$)

Reception, crane

1

2000

Weighing, 0.5 t scale

1

1700

Washing, 2 000 1 tank

1

300

Heading and gutting, large table with saw

1

4500

Washing, tank

1

300

Cutting, large table with saw

1

4500

Washing, tank

1

300

Placing on trays, large table

1

200

Tray capacity, 40 kg each

20

200

Crane and two tray carriers

1

1900

Cooking, insulated container

1

1128

Cleaning of cooked fish, large table for two workers

 

400

Packaging, large table

1

200

Filling with oil and seal, seamer: 10 cans/min

1

6900

Sterilization, retort: 700 cans/load

1

16000

Labelling, large table

1

100

Boiler, 250 kg steam/h

1

8900

Total delivered cost of major equipment items

I equipment

49528

  1. Using the appropriate Lang Factor (From Table 3.8)
    Fixed Investment = US$ 50 000 x 2.485 = US$ 124 250

  2. Using the multiple-factor method, each factor has a range of values and the professional must rely on pastexperience to decide, in each case, whether to use a high, average, or low figure. Table 3.17 shows the development of the estimate.

  3. From the data given in Table 3.12, fixed capital investment for a manual canning plant to elaborate 1.25 tfinished product/day located in tropical countries, is US$ 170 000. This value is about 30% higher than the total fixed investment calculated previously.

Data from Table 3.12 should be used only in absence of more specific information. 

Table 3.17 Use of Factors from Table 3.9 for Capital Cost Estimation (Canned Fish)

Item

Multiplying factor

Cost of item (US$)

Delivered equipment cost 

1.00

50000

Installed equipment cost 

0.20

10000

 

IE

60000

Experimental Factors as a percentage of IE

fi

 

Process piping 

0.03

1800

Instrumentation 

0.01

600

Buildings 

0.60

36000

0.64

38400

Total Physical Cost,

 

98400

Total Direct Cost

 

100000

Experimental Factors as Percentage of Total Physical Cost 

fIi

 

Engineering 

0.10

10000

Size Facto 

0.10

10000

Contingencies 

0.10

10000

Total Indirect Cost,

0.30

30000

Total Fixed Investment,

 

130000

(*) The cost of buildings can also be estimated according to Myrseth (1985), taking into account that: 20 t of raw material require 4 000 m2 and the construction cost is US$ 200/m2. In this case,. for 1 t of raw material 200 m2 will be required and the cost will be US$ 40 000. This value is comparable with the US$ 36 000 obtained in Table 3.17. This means that the two total estimates will be US$ 98 400 and US$ 102 400. It will be considered an average of US$ 100 000 for direct costs.

  1. It should be noted that the capacity interval for the application of the cost-capacity factor, is 8-35 t/day.
    However, this estimate can be used to obtain the order of magnitude of the investment required.
    According to Table 3.3 and Equation (3.2):
    IF = US$ 1 100 000 x (1/11.3)0.89 = US$ 127 000
    It will be considered that fixed investment amounts US$ 130 000, excluding land.

  1. Iw 10% IF (from Section 3.8 a)
    Iw = 0. 1 x US$ 130 000 = US$ 13 000

  2. IT = IF + Iw
    IT = 130 000 + 13 000 = US$ 143 000