OVERVIEW

Before examining the problems for this chapter, we need to present some basic cost engineering concepts. First, there are two general cost categories: total capital investment (TCI) and total annual cost (TAC). Also referred to as the capital cost or first cost, the TCI of a plant, process, operation, or similar activity includes all costs required to purchase the necessary equipment; the costs of the materials and labor needed to install that equipment (the direct installation costs); the costs for site preparation and buildings; and the costs for engineering, contractor fees, contingencies, and other indirect installation costs. The TCI also includes costs for land, working capital, and off-site facilities.

The equations that follow show how the various elements of the total capital investment are related.

where total direct cost=costs of equipment, direct installation, site preparation and buildings

The total direct cost (TDC) includes both the direct installation costs and the costs of site preparation and buildings. Further, the sum of the total direct cost and total indirect cost (or direct installation costs) is termed the battery limits cost. Finally, the battery limits cost plus the cost of off-site facilities (e.g., a railroad spur) comprise the total depreciable investment. Put simply, this is the portion of the TCI for which the firm is permitted to take a depreciation deduction on its corporate income tax return. The other portion of the TCI, namely, land and working capital, may...