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Interest: Capitalized Cost - 1 Video Lecture | Crash Course for GATE Chemical Engineering
FAQs on Interest: Capitalized Cost - 1 Video Lecture - Crash Course for GATE Chemical Engineering
| 1. What is capitalized cost in the context of chemical engineering? |  |
Ans. Capitalized cost refers to the total cost of an asset or project, taking into account both the initial investment and the ongoing costs associated with the asset's operation. In chemical engineering, this includes costs for equipment, installation, maintenance, and any other costs that may arise over the asset's useful life. It is a critical concept for evaluating the economic feasibility of chemical processes and projects.
| 2. How is capitalized cost calculated? | |
Ans. The capitalized cost is calculated by summing the initial capital investment and the present value of future costs. This involves determining the total initial costs, which include equipment purchase, installation, and commissioning, and then adding the present value of operational costs, maintenance expenses, and decommissioning costs, all discounted back to the present using an appropriate interest rate.
| 3. Why is understanding capitalized cost important for chemical engineers? | |
Ans. Understanding capitalized cost is essential for chemical engineers as it enables them to assess the long-term financial viability of projects. By analyzing capitalized costs, engineers can make informed decisions regarding project investments, compare alternative processes, and optimize resource allocation, ultimately ensuring that projects are both technically and economically feasible.
| 4. What role does interest rate play in capitalized cost calculations? | |
Ans. The interest rate is crucial in capitalized cost calculations as it is used to discount future costs to their present value. A higher interest rate results in a lower present value of future costs, which can significantly affect the total capitalized cost. Engineers must choose an appropriate interest rate that reflects the opportunity cost of capital to ensure accurate financial assessments.
| 5. How does capitalized cost influence decision-making in chemical process design? | |
Ans. Capitalized cost influences decision-making in chemical process design by providing a comprehensive view of the financial implications of different design choices. By comparing the capitalized costs of various options, engineers can identify the most cost-effective solutions, prioritize projects based on economic returns, and ensure that limited resources are allocated to the most promising and financially viable designs.
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Sep 10, 2025
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