Question 1

According to the six-tenths-factor scaling rule used in preliminary cost estimation, if a similar unit of capacity n times larger is built, its cost is approximately how many times the cost of the original unit?

Accepted Answer

Introduction / Context: During early project stages, engineers estimate costs for different capacities using empirical scaling laws. The widely used six-tenths-factor rule states that cost scales sublinearly with capacity because of economies of scale. This question checks your recall of the scaling exponent and how to apply it qualitatively. Given Data / Assumptions: Two similar process units (same technology) differing mainly in capacity. Capacity scale factor n = New capacity / Base capacity. Cost follows C_new ≈ C_base * n^0.6 for a first-cut estimate. Concept / Approach: The six-tenths-factor reflects that doubling capacity less than doubles cost due to shared infrastructure and geometric scaling (surface vs. volume). While 0.6 is a rule of thumb and varies by equipment type, it is a standard starting point when vendor quotes are unavailable. Step-by-Step Solution: Let C2 be cost at capacity n times C1.Apply rule: C2 ≈ C1 * n^0.6.Thus, the multiplier relative to C1 is n^0.6. Verification / Alternative check: If n = 2, cost multiplier ≈ 2^0.6 ≈ 1.52, showing economies of scale (less than 2x). If n = 10, multiplier ≈ 10^0.6 ≈ 3.98, much less than proportional scaling (10x). Why Other Options Are Wrong: n (or duplicate n): Implies linear scaling; ignores economies of scale.n^0.4: Too low for the general rule; some specialized items may have different exponents but 0.6 is the conventional default. Common Pitfalls: Applying the rule outside its validity (different technology or materials). Forgetting to adjust for installation factors, inflation, or location indices. Final Answer: n0.6

Question 2

A balance sheet presents the financial position of a chemical plant at a point in time. Which of the following does a balance sheet not directly show?

Accepted Answer

Introduction / Context: Financial statements include the balance sheet (position), income statement (performance), and cash flow statement (liquidity). Understanding what each statement contains helps engineers interpret project health and communicate with finance teams. Given Data / Assumptions: Standard accounting formats: balance sheet lists assets, liabilities, and equity at a date. Profit for a period is derived on the income statement, not the balance sheet. Retained earnings on the balance sheet reflect cumulative results, not current-period profit explicitly. Concept / Approach: A balance sheet shows what the plant owns and owes: current assets, non-current assets, current liabilities, long-term liabilities, and equity. Profit (or loss) for a period is reported on the income statement. While equity includes retained earnings, it does not isolate the current period’s profit figure directly on the balance sheet. Step-by-Step Solution: Scan balance sheet sections: assets, liabilities, equity.Identify items listed in options: current assets, current liabilities, and long-term debt are explicit line items.Profit is not a balance sheet heading; it appears in the income statement. Verification / Alternative check: Cross-reference with the income statement where net profit = revenues - expenses for the period; that figure updates retained earnings on the balance sheet but is not displayed as “profit” there. Why Other Options Are Wrong: Current asset, current liability, long term debt: All are standard line items on a balance sheet. Common Pitfalls: Confusing retained earnings with period profit. Expecting the balance sheet to show performance metrics rather than positions. Final Answer: profit

Question 3

An investment of ₹100 lakhs is made to construct a plant, and construction takes 2 years before production starts. Thereafter the annual profit is ₹20 lakhs. What is the payback time measured from the time of the initial investment?

Accepted Answer

Introduction / Context: Payback time is a simple screening metric indicating how long it takes for cumulative net profits (or cash inflows) to recover the initial investment. In capital projects with construction lead times, the clock starts at the initial outlay even if no profits accrue during construction. Given Data / Assumptions: Initial investment = 100 lakhs at t = 0. Construction delay = 2 years with no operating profit. Annual profit after start-up = 20 lakhs per year (assume uniform and immediate at year end). Time value of money ignored (simple payback). Concept / Approach: Simple payback counts the number of years until cumulative profits equal the initial outlay. Because there are two years of zero profit, those years must be included in the total elapsed time to recovery. Step-by-Step Solution: Required cumulative profit = 100 lakhs.Annual profit once running = 20 lakhs/year.Operating years needed = 100 / 20 = 5 years.Add construction delay = 2 years.Total payback time = 5 + 2 = 7 years. Verification / Alternative check: Timeline check: Years 0–1: investment only; Year 2 end: still zero recovery; Years 3–7: accrue 20 lakhs each year; at end of Year 7 cumulative profit = 100 lakhs, so recovery occurs then. Why Other Options Are Wrong: 5 years: Ignores the construction delay.10 or 12 years: Overstates recovery time; 5 years of profit is sufficient once operations begin. Common Pitfalls: Confusing simple payback with discounted payback (which accounts for time value and would be slightly longer). Ignoring pre-operational periods when calculating total elapsed time. Final Answer: 7 years

Question 4

Relative cost comparison: for similar chemical process plants, the typical total cost of constructing a plant in India is approximately how much percent higher than the cost of a similar plant in the U.S.A. (order-of-magnitude estimate)?

Accepted Answer

Introduction / Context: International cost estimation often uses location factors to adapt baseline costs from one country to another. For planning-level comparisons, engineers quote approximate percentages or indices acknowledging differences in labor rates, materials, logistics, codes, and taxation. Given Data / Assumptions: Plants are of similar capacity and technology. Comparison excludes volatile currency swings and recent shocks; it is an order-of-magnitude benchmark. Percent figure reflects typical textbook and exam convention. Concept / Approach: Location factors capture regional cost multipliers. In many instructional references, India’s installed plant costs are cited as moderately higher or lower depending on era and data source; in traditional exam sets, a value around 15 percent higher than a U.S. baseline is commonly used as a representative comparison for quick estimates. Step-by-Step Solution: Identify the conventional benchmark value used in standard problem sets.Select the closest option representing a modest differential.Answer: 15 percent. Verification / Alternative check: Cost index handbooks provide detailed factors by country and time. While real-world values vary, the exam-style convention typically uses a single rounded percentage for quick mental calculations. Why Other Options Are Wrong: 35, 55, 75: These imply much larger cost gaps that are not standard as teaching norms for generic comparisons. Common Pitfalls: Treating this percentage as a fixed truth rather than an estimate sensitive to exchange rates and local market conditions. Forgetting to apply inflation and cost indices when moving across years. Final Answer: 15

Question 5

Within the fixed-capital investment (FCI) of a chemical process plant, the purchased cost of major equipment typically accounts for what percentage range of FCI?

Accepted Answer

Introduction / Context: Understanding how fixed-capital investment (FCI) breaks down helps in early estimates and in sanity-checking vendor quotes. Purchased equipment cost is a large, visible component but is only a portion of the total installed cost once foundations, piping, instrumentation, and other direct/indirect costs are included. Given Data / Assumptions: We refer to major process equipment (reactors, separators, heat exchangers, etc.). FCI includes direct costs (equipment, installation, piping, electrical) and indirect costs (engineering, construction, contingencies). Rule-of-thumb ranges are sought for conceptual estimating. Concept / Approach: In many chemical plants, purchased equipment constitutes roughly one-fifth to two-fifths of total fixed capital. Installation, piping, electrical, buildings, and services roughly double to triple the bare equipment cost. Thus, a 20–40 percent share for purchased equipment within FCI is a commonly taught range for preliminary estimates. Step-by-Step Solution: Recall common cost fractions from conceptual estimating methods.Link bare equipment cost to installed cost multipliers (e.g., Lang factors).Conclude purchased equipment is typically 20–40% of FCI. Verification / Alternative check: Using a Lang factor of about 4–5 for fluids/solids processing projects: installed cost ≈ 4 * purchased equipment. Therefore, purchased equipment ≈ 1/4 to 1/5 of total plant investment, consistent with 20–40% of FCI when definitions differ slightly among sources. Why Other Options Are Wrong: 10–20%: Too low for many chemical process plants.45–60% or 65–75%: Unrealistically high; would leave insufficient room for installation and indirect costs. Common Pitfalls: Confusing purchased cost with installed cost (which includes erection and auxiliaries). Applying a single fraction universally; actual fractions vary by project complexity. Final Answer: 20 to 40

Chemical Engineering Plant Economics Questions