Commercialization cash flow

The production phase commences with the first commercial quantities of hydrocarbons ( first oil ) flowing through the wellhead. This marks the turning point from a cash flow point of view, since from now on cash is generated and can be used to pay back the prior investments, or may be made available for new projects. Minimising the time between the start of an exploration campaign and first oil is one of the most important goals in any new venture. 

The flow of cash is the life blood of any commercial organisation. The cash flows in a manufacturing company can be likened to the material flows in a process plant. 

Salvage value is the price that can be actually obtained or is imputed to be obtained from the sale of used property if, at the end of its usage, the equipment (property) still has some utility. Salvage value is influenced by the current cost of equivalent equipment, its commercial value, whether the equipment must be dismantled and relocated to have utility for others, and the (projected) physical condition of the equipment. Salvage value can be thought of as a cash flow that may occur several years in the future, but does not represent income for federal income tax purposes when received. 

For the accumulated costs and resources devoted to the development of a new chemical entity (NCE) or new molecular entity (NME) to make sense financially, the commercial potential of the compound must be evaluated in a rigorous manner. Compounds whose expected financial performance does not warrant these high investment costs must be abandoned or out-licensed as soon as possible so as to direct resources toward more profitable endeavors. By operating effectively, a well-designed drug discovery and development process can focus its efforts to operate efficiently on the compounds that will maximize cash flow to the pharmaceutical firm. 

Detailed estimates similar to Table XIX were carried out for each case. The results are summarized and compared on Table XX. Factors used for labor, maintenance, taxes, and insurance are typical of those used for analyzing long-term, large scale commercial projects. The capital charge factor, the yearly rate at which the investment is charged to the project, was chosen to provide about a 15% after-tax discounted cash flow (DCF) rate of return on investment based on reasonable and commonly used assumptions for projects of this type and magnitude. These assumptions are summarized on Table XVIII. 

R. PASSMAN I think the suggestion was made that each company decide what it needs in order to go commercial. That could be a capital grant or an investment tax credit or whatever it might be. But if, in their own calculations, that gave them a requisite return on investment or a discounted cash flow of some form that they needed and they received, because of all those that came in, that happened to be the best deal for the government then there was a match and therefore they ought to proceed with it. If they lost their shirt or other parts of their anatomy, it would be their own fault. 

The reward criterion covers those areas related to the expected financial performance of the project. An important method for determining the financial success of a project is the net present value (NPV) calculation. This method calculates the present value of future cash flows. If the NPV is positive, the investment is beneficial from a financial standpoint. Additionally, a financially successful project is expected to have an average return on capital employed (ROCE) above a selected level, which makes commercial sense with regards to industry/branch standards. 

This paper uses pyrolysis products from an air-blown, fluidized-bed reactor designed to produce liquids for use in adhesives as an illustration of what might be produced, separated and sold commercially for higher value. Guidelines for chemicals production and product recovery are suggested for pyrolysis processes in general. Recommended research and development topics to aid commercialization and increase chemical product recovery and project cash flow are presented. 

Two small commercial incineration facility designs are under consideration. The first design involves a liquid injection incinerator and the second a rotary kiln incinerator. For the liquid injection system, the total capital cost (TCC) is 2.5 million, the annual operating costs (AOC) are 1.2 million, and the annual revenue generated from the facility R) is 3.6 million. For the rotary kiln system, TOC, AOC, and R are 3.5, 1.4, and 5.3 million, respectively. Using straight-line depreciation and the discounted cash flow method, which design is more attractive Assume a 10-yr facility lifetime and a 2-yr construction period. Note that the solution involves the calculation of the rate of return for each of the two proposals. 

These contracts defined the new company s basic strategic plan. The Lilly contract with 8 percent royalties would provide the cash flow from the exclusive right to manufacture and sell the resulting recombinant proteins. Through the Kabi contract, Genentech would produce and sell in the U.S. market, and Kabi would do the same in the rest of the world. The first would thus generate the cash flow required to commercialize the more complex hGH technology for a much smaller, specialized potential market than insulin. 

Evaluating a predicted discounted net cash flow curve will determine to a large extent whether an R D result is worth commercialization. Uncertainties exist and have been incorporated in some analyses by increasing the discount percentage by an increment proportional to uncertainty. However, a prudent management must accept uncertainty risks and periodically reevaluate the decision to proceed. 

A cash flow curve for R D plus commercialization of a transmission voltage bushing is shown in figure 5. EPRI has funded this project since 1975. Total R D costs, including corporate cost sharing, will be about 700,000 when the project is complete this year. In comparison, forecast commercialization costs involve a temporary negative cash flow of over 5 million. Details of the cash flow are tabulated in figure 6. This table is provided only for illustration because realistic market and cost estimates are not yet available. 

From an EPRI or DOE investment viewpoint, R D expenditures can be justified in many cases where a manufacturer would not invest because the ROI calculated by EPRI or DOE is greater. EPRI s or DOE S more favorable ROI may result from two factors i.e. no payment for commercialization costs, and/or the fact that all the benefits and hence income to utilities or society accrue to EPRI or DOE while only a fractional market capture accrue to the competitive manufacturer. Thus with a better ROI, EPRI or DOE has more motive to pay for R D than the manufacturer even if cost of money were the same to both. In addition money may be less costly to EPRI or DOE than it is to the manufacturer hence a lower discount can be used for cash flow and longer time between investment and payoff can be acceptable. Such financial factors can explain to some extent logic which makes government investment in fusion R D tenable, while a manufacturer could not endure the decades of negative cash flow before a profit is even possible. 

Evaluation of R D results for possible commercialization should include consideration of lAT, cash flow, incremental investment requirements and fit to present company facilities, markets, technology, and management. 

At no point in the process has a "profit" been made or have cash flows been positive, even undiscounted. Even the Commercial Introduction stage is not normally expected to be profitable in Its own right, though some revenues may obtain. Rather, it is... 

A maximum of 10% of the cover pool can be commercial property loans and substitution assets cannot exceed 20%. To limit cash flow mismatching risk, the Irish bonds exhibit tight matching requirements. For example, the nominal value of the cover assets must at all times exceed the value of the corresponding securities. The aggregate interest from the assets must also exceed that of the covered bond and the currency of the cover assets must be similar to the related bonds. In addition to this, the duration of the cover assets must be greater than the duration of the bonds. 

Perhaps the most important aspect of commercial property analysis is the nature and stability of the underlying cash flows. These are nsually derived from a large number of tenants occupying a single commercial property. The stability and sustainability of these cash flows are used in part to produce a valuation, and they also determine whether the leverage applied to the property is in itself sustainable. 

The launch valuation is a useful guide to the refinance value of the property and also as a starting point for estimating the value in a forced sale situation. However, remember that the valuation for a commercial property is directly linked to the amount of income it can generate. As most commercial properties are owned by special purpose companies, with the income from the property used to finance the debt, any difficulty in maintaining the mortgage payments is likely to be a direct result of a reduction in the cash flows from the property. This will reduce the property s value in a forced sale situation. 

Bonds are debt instruments that represent cash flows payable during a specified time period. They are essentially loans. The cash flows they represent are the interest payments on the loan and the loan redemption. Unlike commercial bank loans, however, bonds are tradable in a secondary market. Bonds are commonly referred to 3S fixed-income instruments. This term goes back to a time when bonds paid fixed coupons each year. That is... 

Some lending institutions penalize borrowers who retire their loans early. In the United States, prepayment penalties are levied only for commercial mortgages, not for residential ones (both are penalized in the United Kingdom). Residential lenders, therefore, cannot be certain of the cash flows they will receive. This is known as prepayment risk. The uncertainty of mortgages cash flows, and the risk associated with it, is passed on to the securities backed by the loans. In this way, an MBS is similar to a callable bond, with the call exercisable at the discretion of the borrowers, and, as will be explained later, it can be valued using a similar pricing model. 

Commercial profitability analysis is the first step in the economic appraisal of a project from a national view point. It is concerned with assessing the feasibility of an investment based on its likely financial results for the individual firm. This analysis comprises two parts (a) investment profitability analysis and (b) financial analysis. These are complementary and non-subslitutable. Investment profitability analysis is a measure of the return on a capital investment irrespective of tiie sources of hnance. F andal analysis takes into consideration the sources of finance and disposal of the net cash flows that accrue to service the finance in a manner that allows smooth implementation and operation of a project. Figure 21.1 summarizes this dichotomy. 

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