Borrowing

The cost of the capital depends on its source. The source of the capital often will not be known during the early stages of a project, and yet there is a need to select between process options and carry out preliminary optimization on the basis of both capital and operating costs. This is difficult to do unless both capital and operating costs can be expressed on a common basis. Capital costs can be expressed on an annual basis if it is assumed that the capital has been borrowed over a fixed period (usually 5 to 10 years) at a fixed rate of interest, in which case the capital costs can be annualized according to... 

As stated previously, the source of capital is often not known, and hence it is not known whether or not Eq. (A. 10) is appropiiate to represent the cost of capital. Equation (A. 10) is, strictly speaking, only appropriate if the money for capital expenditure is to be borrowed over a fixed period at a fixed rate of interest. Moreover, if Eq. (A. 10) is accepted, then the number of years over which the capital is to be annualized is unknown, as is the rate of interest. However, the most important thing is that even if the source of capital is not known, etc., and uncertain assumptions are necessary, Eq. (A. 10) provides a common basis for the comparison of competing projects. 

In the above example, the discount rate used was the annual compound interest rate offered by the bank. In business investment opportunities the appropriate discount rate is the cost of capital to the company. This may be calculated in different ways, but should always reflect how much it costs the oil company to borrow the money which it uses to invest in its projects. This may be a weighted average of the cost of the share capital and loan capital of a company. 

As outlined above, electron transfer through the passive film can also be cmcial for passivation and thus for the corrosion behaviour of a metal. Therefore, interest has grown in studies of the electronic properties of passive films. Many passive films are of a semiconductive nature [92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102 and 1031 and therefore can be investigated with teclmiques borrowed from semiconductor electrochemistry—most typically photoelectrochemistry and capacitance measurements of the Mott-Schottky type [104]. Generally it is found that many passive films cannot be described as ideal but rather as amorjDhous or highly defective semiconductors which often exlribit doping levels close to degeneracy [105]. 

Such vibronically allowed transitions are said to derive their intensity through vibronic borrowing. 

Before concluding this section, there is one additional thermodynamic factor to be mentioned which also has the effect of lowering. Since we shall not describe the thermodynamics of polymer solutions until Chap. 8, a quantitative treatment is inappropriate at this point. However, some relationships familiar from the behavior of low molecular weight compounds may be borrowed for qualitative discussion. The specific effect we consider is that of chain ends. The position we take is that they are foreign species from the viewpoint of crystallization. 

Since the charge becomes coupled with the oscillating field, q undergoes a periodic acceleration which we represent by ap. Next we borrow a relationship from electromagnetic theory to describe the field produced by an oscillating dipole such as the molecule we have described ... 

Drum Filters. The rotary dmm filter, also borrowed from vacuum filtration, makes relatively poor use of the space available in the pressure vessel, and the filtration areas and capacities of such filters cannot possibly match those of the disk pressure filters. In spite of this disadvantage, however, the pressure dmm filter has been extensively developed. 

Throughout the 1970s, appHcations of pattern recognition were found in the chemical sciences. Other methods of multivariate mathematics and statistics were borrowed or invented, and a new discipline called chemometrics arose. In 1974, the Chemometrics Society was formed, and the first Chemometrics newsletter came out in 1976 (12). 

If money is borrowed, interest must be paid over the time period if money is loaned out, interest income is expected to accumulate. In other words, there is a time value associated with the money. Before money flows from different years can be combined, a compound interest factor must be employed to translate all of the flows to a common present time. The present is arbitrarily assumed often it is either the beginning of the venture or start of production. If future flows are translated backward toward the present, the discount factor is of the form (1 + i) , where i is the annual discount rate in decimal form (10% = 0.10) and n is the number of years involved in the translation. If past flows are translated in a forward direction, a factor of the same form is used, except that the exponent is positive. Discounting of the cash flows gives equivalent flows at a common time point and provides for the cost of capital. 

Time Value of Money A large part of business activity is based on money that can be loaned or Borrowed. When money is loaned, there is always a risk that it may not be returned. A sum of money called interest is the inducement offered to make the risk acceptable. When money is borrowed, interest is paid for the use of the money over a period of time. Conversely, when money is loaned, interest is received. 

A (DCFRR) of, say, 15 percent imphes that 15 percent per year will be earned on the investment, in addition to which the project generates sufficient money to repay the original investment plus any interest payable on borrowed capital plus all taxes and expenses. 

The same money invested in a project with a (DCFRR) of 10 percent would, by Eq. (9-108), obtain an entrepreneurial return i = 8.37 percent on the whole investment, i.e., 8.37/ 100. Investment of the entrepreneur s own money would only achieve an aftertax return of (0.1)(1 — 0.40) = 6 percent on 50, or 3/ 100 of total investment. The incentive to the entrepreneur to manage the projeci thus corresponds to a tax-free income of 5.37/ 100 of total investment. In practice, money is borrowed from more than one source at different interest rates and at different tax liabihties. The effective cost of capital in such cases can be obtained by an extension of the above reasoning and is treated in detail by A. J. Merrett and A. Sykes Capital Budgeting and Company Finance, Longmans, London, 1966, pp. 30 8). 

Another instance of differential inflation occurs when the prices of goods and services rise uniformly but the cost of borrowing money, the interest rate charged on a loan, does not rise. 

If the fractional inflation rate is a fractional interest rate on a loan can be corrected to an effective rate of interest by Eq. (9-116) with ii substituted for (DCFRR). The effect of various amounts of loan, borrowed at various interest rates ii, on the net present value of a particular, fairly simple project is shown in Fig. 9-37. Thus, if 25,000 were borrowed at an interest rate of 15 percent for the project, the (NPV) would be about 43,000 at a zero inflation rate. But if the inflation for goods and services i, is 10 percent, the effective interest rate for that loan can be calculated from Eq. (9-116) to be only 4.55 percent. It is seen from Fig. 9-37 that this increases the (NPV) of the project to 48,000. This confirms the economic advantage of borrowing at a fixed interest rate in a time of general inflation. 

The second most important source of short-term financing is notes payable from commercial banks. Banks normally reqmre a Borrower to maintain a compensating balance. For example, if a company requires a loan of 100,000, it must borrow more than this, say, 120,000 (on which it pays interest), in order to maintain a minimum checldng-accouut balance of 20,000. Commercial banks also provide a wide variety of other services that can be of great help to companies in temporary financial difficulties. 

Equation (9-245) shows that in this particular case the fixed-capital cost per unit of input energy CpJW) must not exceed 160,000 (GJh" )" or 576 per kilowatt, to have a 1-year payback period if the heat pump is operational for 8000 h/year. For this case the corresponding value of y is about 0.12 for a heat pump with an operating life of 10 years purchased with money borrowed at a 10 percent rate of interest. 

Clear and modern corporate investment laws Costs of local borrowing... 

Depression method. At locations where natural or artificial depressions exist, it is often possible to use them effectively for land-filling operations. Canyons, ravines, dty borrow pits, and quarries have oeen used for this purpose. The techniques to place and compact solid wastes in depression landfills vary with the geometiy of the site, the characteristics of the cover material, the hydrology and geology of the site, and access of the site. 

As with any constitutive theory, the particular forms of the constitutive functions must be constructed, and their parameters (material properties) must be evaluated for the particular materials whose response is to be predicted. In principle, they are to be evaluated from experimental data. Even when experimental data are available, it is often difficult to determine the functional forms of the constitutive functions, because data may be sparse or unavailable in important portions of the parameter space of interest. Micromechanical models of material deformation may be helpful in suggesting functional forms. Internal state variables are particularly useful in this regard, since they may often be connected directly to averages of micromechanical quantities. Often, forms of the constitutive functions are chosen for their mathematical or computational simplicity. When deformations are large, extrapolation of functions borrowed from small deformation theories can produce surprising and sometimes unfortunate results, due to the strong nonlinearities inherent in the kinematics of large deformations. The construction of adequate constitutive functions and their evaluation for particular... 

The lip seal, or oil. seal, used on modern centrifugal pumps is borrowed from the automotive industry. The lip seal was born with the invention of the automobile transmission and the universal joint in the early days of the family ear. It would effectively retain the transmission fluid and U-joint grea.se on jalopies with rumble seats. It really hasn t changed much in design since the 1920s. 

At present, conformational searches provide for the most important application of computer molecular modeling in biology. In contrast, in statistical physics, from which MC and MD methods were originally borrowed, they are primarily used for studying... 

Interest. The interest for eaeh year must be calculated for the type of loan expected. The interest rate can be obtained from the company s financial section, recent loan history, or the literature. The Wall Street Journal publishes the weekly interest rates for several borrowings. The company s interest rate will probably be the banks prime rate, or slightly higher. 

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