Case Study

Aim To develop an understanding of evaluating the economic viability of projects in process industries.

Objective

- to understand the concepts and methods of economic evaluation
- to prepare cost estimation, financial statements and cash flow for industrial operation.General Instructions:

This coursework aims to develop an understanding of evaluating the economic viability of projects in process industries. The students are presented with a case study related to an industrial investment scenario. The case study requires the students to make wise judgements in uncertain situations, and to propose and select from multiple possible options with proper justifications. Each student is expected to prepare a separate project feasibility report based upon their inferences and to report the same in a standard format. The report is expected to be free from grammatical errors and should be organized well.

Assessment Methodology:

The assessment for this coursework is based on the feasibility and viability analysis of the given project and the structured reporting of the same. The feasibility analysis carries 90% of the assessment while the remaining 10% comes from the structuring of the report. The detailed breakdown of marks for each assessment is shown under marking scheme.

1 Identification of the major equipment required for starting up a chemical plant.
2 Determination of the start-up capital for the project.
3 Estimation of the total production cost
4 Assessing the Rate of Return (RoR) of the project
5 Completeness of the project report and proper reporting of the key financial factors

CASE STUDY

Background of the problem

The demand for ammonia is on the increase. Emerging countries especially India and China are looking forward to become self-sufficient in terms of food production, and are seeking to produce more ammonia based fertilizers. The global demand for ammonia has increased from 96 million tons in 2000 to 120 million in 2011 and it is expected to grow further to reach the level of 160 million in 2020 (Source: Ammonia Global Market to 2020
- Food Security Concerns Driving Demand for Ammonia-Based Fertilizers, 2013).

Dhofar Fertilizers Company, a fertilizer manufacturing unit located in Sohar, has plans to capitalize on this business opportunity by investing on a new ammonia plant. Mr.Mohammed Al Farsi, the production manager, has been given the task to prepare a cost estimation and feasibility study for this product. As a chemical engineer working in the company you were delegated with this task. Prepare a comprehensive project report to assess the economic viability of the project.

Tasks

1. Prepare a list of the major equipment required to start an ammonia plant having an annual production capacity of 250,000 tonnes per year.

2. Based on the purchased equipment cost, prepare a study estimate of the ammonia plant (with an accuracy of ± 30 percent).

a. Determine the Fixed Capital Investment (FCI)

b. Determine the Working Capital Investment (WCI)

c. Determine the Total Capital Investment (TCI)

3. Estimated the total production cost (TPC) per tonne of ammonia.

4. Determine the Rate of Return (ROR) the project. Comment on whether this RoR is justifiable to undertake the project.

5. Prepare a project feasibility report, which contains all of the above information laid out in a standard feasibility report format.

Additional Notes:

1. Assume any insufficient data needed for calculation.

2. If recent cost data is not available the cost could be determined using appropriate cost indices/scaling factors.

3. The project feasibility report should contain all of the above information and should follow a standard report structure.