Business Considerations - Fundamentals of Industrial Chemistry: Pharmaceuticals, Polymers, and Business - page 73

Other items such as interest, taxes and depreciation are also included in the
detailed cost estimate.
The ratio of profit to investment is called return on investment (ROI). If
there is a single up-front investment needed, it would be the return on original
investment. A situation where continual investments are needed, such as
for continual equipment upgrades, would be better calculated as return on
average investment. Another common term used to determine the desirability
of a project is the payout time. This is done by calculating the sum of
profit plus depreciation each year until the sum equals the value of the
investment. The lower the payout time, the more financially attractive is the
project.
Because the raw material cost is a major component of a cost estimate, it
is worthwhile to learn how to calculate this. If the raw material cost is higher
than the anticipated selling price, there is a problem. If it is significantly lower
than the selling price, the project probably warrants further consideration.
Raw material costs can be done by simple calculations, sometimes referred
to as “back of the envelope” calculations because they can be done on the
back of an envelope during a discussion.
Imagine that we have an opportunity to sell ethyl acetate for $0.70 per
pound and we know how to make it from acetic acid and ethanol. If we can
achieve 100% yield and acetic acid costs $0.40 per pound and ethanol costs
$0.38 per pound, is it worth considering the opportunity?

H + catalyst

+

CH 3 CO 2 CH 2 CH 3

CH 3 CO 2 H CH 3 CH 2 OH

Acetic acid Ethanol Ethyl acetate

You might be surprised at how many people will quickly say, “Of course
not; it will cost you $0.78 and you can only sell it for $0.70.” This would be
true if one pound of acetic acid and one pound of ethanol make one pound of
ethyl acetate. But that is not the case. One mole of acetic acid and one mole
of ethanol make one mole of ethyl acetate.

H + catalyst

+ CH 3 CO 2 CH 2 CH 3

CH 3 CO 2 H CH 3 CH 2 OH

Acetic acid Ethanol Ethyl acetate

Molecular mass 60 amu 46 amu 88 amu

By calculating molecular masses, we can say that 60 g of acetic acid can
be combined with 46 g of ethanol to make 88 g ethyl acetate. This mass