Cash flow analysis

Life cycle cost analysis is the proper tool for evaluation of alternative systems (11,12). The total cost of a system, including energy cost, maintenance cost, interest, cash flow, equipment replacement and/or salvage value, taxes, inflation, and energy cost escalation, can be estimated over the useflE life of each alternative system. A Hst of life cycle cost items which may be considered for each system is presented in Tables 3 and 4. Reference 14 presents a cash flow analysis which also includes factors such as energy cost escalation. 

Gash Flow Examples. Several hypothetical ventures are presented to illustrate cash flow analysis. Venture A exhibits a cash flow analysis. Venture A exhibits a cash flow pattern typical of process ventures. Other ventures are introduced for comparison and to provide additional insight into cash flow analysis. 

Figure 61.7 Cumulative cash flow Analysis of variances ...

Discounted cash-flow analysis, used to calculate the present worth of future earnings (Section 6.10.3), is sensitive to the interest rate assumed. By calculating the NPW for various interest rates, it is possible to find an interest rate at which the cumulative net present worth at the end of the project is zero. This particular rate is called the discounted cash-flow rate of return (DCFRR) and is a measure of the maximum rate that the project could pay and still break even by the end of the project life. 

Table II. Net Present Value - Discounted Cash Flow Analysis...

These parameters are used to construct a cash flow analysis, which contains items including ... 

Depreciation The Internal Revenue Service allows a deduction for the exhaustion, wear and tear and normal obsolescence of equipment used in the trade or business. (This topic is treated more fufly later in this section.) Briefly, for manufacturing expense estimates, straight-line depreciation is used, and accelerated methods are employed for cash flow analysis and profitability calculations. 

Land for the project is available at 300,000. The fixed capital investment was estimated to be 12,000,000. A working capital of 1,800,000 is needed initially for the venture. Start-up expenses based upon past experience are estimated to be 750,000. The project qualifies under IRS guidelines as a 5-year class life investment. The company uses MACRS depreciation with the half-year convention. At the conclusion of the prmect, the land and working capital are returned to management. Develop a cash flow analysis for this project, using a cumulative cash position table (Table 9-25). 

Fixed capital investment Working capital requirements Total capital investment Total manufacturing expense Packaging and in-plant expense Total product expense General overhead expense Total operating expense Marketing data Cash flow analysis Project profitability Sensitivity analysis Uncertainty analysis... 

Cash Payback is calculated by a cash flow analysis. The cash flow generated by an investment is the cash value of the benefits it achieves less the cash outlays to pay for the capital investment. Assuming that the system s costs precede its benefits, cash... 

If a review of your net worth suggests something needs to be done to improve your financial situation, the best way to understand the problem is to compare what you earn to what you spend. This is called a cash flow analysis. It gets to the basic question of how much of your income is spent on debt service, consumption, and savings. It also answers the question of how much more you are spending than you have coming in—or vice versa. 

It is not easy to get the necessary information to do a good cash flow analysis. Start with your checkbook, credit card statements, and tax records. The most difficult information to get will be what you spend on cash purchases. The best approach is to keep a journal for a couple of weeks to get a pattern and then estimate the amounts factoring in your personal experience. Income information should be available from your tax records. 

Summarize your spending. Look over your cash flow analysis and summarize your spending in three categories. First, calculate the amount of your monthly fixed expenses. This includes rent or mortgage payments, utilities, car payments, gas and oil, and operating expenses. Second, calculate your necessary variable expenses. This includes taxes, insurance, car and home repairs, and doctor and dentist bills. Third, calculate your discretionary expenses. This includes gifts, contributions, and entertainment. 

A discounted cash flow analysis is performed on those capital cost and production cost figures reported in Ref. PT1 (plant capacity of 280 tonne of 60% nitric acid). Although the plant cost data relates to a US plant, the figures still indicate the trend. 

Accounting Keep the books Record financial transactions Prepare financial statements Manage cash flows Analysis of profitability... 

To determine the required selling price of hydrogen, a cash flow analysis was performed using an after-tax internal rate of return (IRR) of 15%. Other major assumptions used in the analysis were equity financing for a 20 year plant life including two years of construction time, a 90% on-stream factor with 50% plant capacity in first year of production, 30% of capital investment is spent in the first year and 70% in the second year, a tax rate of 37%, and ten year straight-line depreciation. 

Table 1. Cash Flow Analysis of Various Fermentations (unpublished estimates from C. Cooney)...

The levelized prices of PV electricity and H2 are derived by net present value cash flow analysis. The net present value cash flow method is described in Appendix A.l. A straight tine, ten-year depreciation schedule is applied with an annual depreciation rate of 9% of capital. The levelized PV electricity and H2 prices are derived by choosing PV electricity and H2 prices to generate a revenue level that results in a cumulative, net cash flow stream with a 0 net present value over the thirty-year capital recovery period. The annual net cash flow streams are discounted at the present value of the 6%-discount rate. Investment funds are allocated in year 1 construction occurs in year 2 and H2 cash flow begins in year 3. The modular design of PV electrolysis plants and H2 distribution systems enables the rapid initiation of H2 marketing and cash flow. 

The application of net present value cash flow analysis to estimate levelized energy prices tends to provide estimates that are more conservative than almost any other estimation method, thereby making the analysis more robust. 

A discounted cash-flow analysis of the system was made using conservative financing assumptions. These included 100% equity, 12% return on investment, and a plant life of 20 years plus a construction time of five years. Strip-mined western coal was priced conservatively at 15 per ton. This is a reasonable price, for example, for coal delivered from Gillette, Wyoming by unit train to a plant serving the Chicago area (mid-1977 prices) alternatively, a mine-mouth plant site would obtain coal at lower prices, but product transportation costs would be higher. 

The design of a chemical processing unit to meet a specific consumer demand and the comparison of alternative process costs (by retum-on-investment and discounted-cash-flow analysis) are well covered in texts on process economics and are not treated in this book. 

Any number of methods for economic analysis could be employed here, a discounted cash flow analysis is used. Assume that (a) the heater replacement cost is 235,000 (b) the replacement heater will have a 20-year life and an 18,000 salvage value (c) fuel and maintenance savings are escalated at 6% per year (d) after tax cost of capital is 9%. Table III shows the results of the cash flow analysis of the proposed investment in a replacement heater. As is indicated, since the net cumulative discounted cash flow (+ 29,166) is positive, the replacement of the heater is justified. 

Apply discounted cash flow analysis to determine a cost per kilogram of hydrogen. 

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