Cumulative cash flow

YEAR CASH FLOWS ( ) CUMULATIVE CASH FLOWS ( ) DISCOUNT FACTOR PRESENT VALUE ( )... 

PRINT THE VALUES OF THE YEARLY CASH FLOWS, CUMULATIVE CASH FLOWS DISCOUNT FACTORS AND THE PRESENT VALUES... 

Case 1. The negative cash flow cumulatively increases to 29 million in 1998 and starts to turn around because of positive [AT in 1999 and 2000 but is still a poor business prospect because of large investment requirements compared to [AT. 

Year Percentage of Design Capacity Sales Capital Costs Working Capital Variable Costs Fixed Costs Depredation Allowance Depletion Allowance Taxable Income Income Tax Costs Net Earnings Annual Cash Flow Cumulative Net Present Value at 15.0%... 

Month Cash in Cash out Net monthly cash flow Cumulative cash flow... 

End of Year Nondiscounted Cash Flow Disrounted Cash Flow Cumulative Discounted Cash Flow... 

Figure A.2 shows the cash-flow pattern for a typical project. The cash flow is a cumulative cash flow. Consider curve 1 in Fig. A.2. From the start of the project at A, cash is spent without any...

The predicted cumulative cash-flow curve for a project throughout its life forms the basis for more detailed evaluation. Many quantitative measures or indices have been proposed. In each case, important features of the cumulative cash-flow curve are identified and transformed into a single numerical measure as an index. 

The project cashflow s constructed by performing the calculation for every year of the project life. Atypical project cashflow is shown in Figure 13.9, along with a cumulative cashflow showing how cumulative revenue is typically split between the capex, opex, the host government (through tax and royalty) and the investor (say the oil company). The cumulative amount of money accruing to the company at the endof the project is the cumulative cash surplus or field life net cash flow. 

From the cash flow and cumulative cashflow some basic economic indicators can be determined. The cashflow determines the economic lifetime of the field. When the cashflow turns permanently negative due to decreasing revenues (e.g. revenues are... 

The point at which the cumulative cash flow turns positive indicates the payout time (or payback time). This is the length of time required to receive accumulated net revenues equal to the investment. This indicator says nothing about the cash flow after the payback time and does not consider the total profitability of the investment opportunity. 

Fig. 2. (— —) Cumulative and (—° —) 8% discounted cash flow rate for development of a hypothetical agrochemical in constant 1994 U.S. dollars, where A represents the time the patent was first issued B, first registered use C, manufacturing plant start-up D, positive cumulative cash flow and E, patent...

This gives two choices ia interpreting calculated NRR values, ie, a direct comparison of NRR values for different options or a comparison of the NRR value of each option with a previously defined NRR cutoff level for acceptabiUty. The NPV, DTC, and NRR can be iaterpreted as discounted measures of the return, iavestment, and return rate, analogous to the parameters of the earher example. These three parameters characterize a venture over its entire life. Additional parameters can be developed to characterize the cash flow pattern duting the early venture years. Eor example, the net payout time (NPT) is the number of operating years for the cumulative discounted cash flow to sum to zero. This characterizes the early cash flow pattern it can be viewed as a discounted measure of the expected operating time that the investment is at risk. 

Let us consider projects A and B, having net annual cash flows as listed in Table 9-2. Both projects have initial fixed-capital expenditures of 100,000. On the basis of payback period, project A is the more desirable since the fixed-capital expenditure is recovered in 3 years, compared with 5 years for projec t B. However, project B runs for 7 years with a cumulative net cash flow of 110,000. This is obviously more profitable than project A, which runs for only 4 years with a cumulative net cash flow of only 10,000. 

Cash-Flow Curves Figure 9-9 shows the cash-flow stages in a project together with their discounted-cash-flow values for the data given in Table 9-4. In addition to cash-flow and discounted-cash-flow curves, it is also instructive to plot cumulative-cash-flow and cumula-tive-discounted-cash-flowcurves. These are shown in Fig. 9-10 for the data in Table 9-4. 

It is not normally possible to make a comprehensive assessment of profitabihty with a single number. The shape of the cumulative-cashflow and cumulative-discounted-cash-flow curves both before and after the breakeven point is an impoiTant factor. 

D. H. Allen [Chem. Eng., 74, 75-78 (July 3, 1967)] accounted for the shape of the cumulative-undiscounted-cash-flow curve up to the... 

FIG. 9-10 Effect of discount rate on cumulative cash flows. 

Allen accounted for the shape of the cumulative-cash-flow curve... 

C. G. Sinclair [Chem. Process. E/ig., 47, 147 (1966)] has considered similar parameters to the (EMIP) and (IRP) based on a cumulative-discounted-cash-flow curve. 

It is possible for some projects to reach a stage at which repairs, replacements, etc., can exceed net earnings in a particular year. In this case the cumulative-discounted-cash-flow or net-present-value curve plotted against time has a genuine maximum. 

No single value for a profitability estimate should be accepted without further consideration. An inteUigent consideration of the cumula-tive-cash-flow and cumulative-discounted-cash-flow curves such as those shown in Fig. 9-10, together with experience and good judgment, is the best way of assessing the financial merit of aprojec t. 

Cumulative discounted-cash-flow or (NPV) curve for a discount rate of 10 percent per year or other agreed aftertax cost of capital... 

Maximum discounted cumulative expenditure on the project Cumulative net annual cash flow X Acf... 

Cumulative net annual discounted cash flow X oi net present value (NPV)... 

Let us consider the net annual cash flows (after tax) Acf foi projects E, F, and G, hsted in Table 9-6. The cumulative annual cash flows X Acf 3.nd cumulative discounted annual cash flows X dcf, using a discount of 10 percent for these projec ts, are also hsted in Table 9-6. We notice that the cumulative annual cash flow for each project is -i- 1000. 

The net annual cash flows Acp and cumulative discounted annual cash flow X Aocf discount factor of 10 percent are hsted in Table 9-7 for the two projec ts. At the end of Year 9, the net present values are... 

The discounted-cash-flow rate of return (DCFRR) and net present value (NPV) are functions of the cumulative revenue from annual sales X AfE and the fixed-capital cost of the plant Cfc, among other factors. 

Figure 61.7 Cumulative cash flow Analysis of variances ...

If the new catalyst requires drastically different conditions, e.g. fluid bed operation instead of fixed bed operation, or if it needs substantial additions to the purification train, it is again possible to calculate the benefit in terms of the return (in reduced operating cost) on the new capital, but it is probably more informative to draw up a cumulative cash flow diagram. This is illustrated in Fig. 3. 

C-D The cash-flow curve turns up at C, as the process comes on stream and income is generated from sales. The net cash flow is now positive but the cumulative amount remains negative until the investment is paid off, at point D. 

D-E In this region the cumulative cash flow is positive. The project is earning a return on the investment. 

The point F gives the final cumulative net cash flow at the end of the project life. 

In Figure 6.8 the net cash flow is shown at its value in the year in which it occurred. So the figures on the ordinate show the future worth of the project the cumulative net future worth (NFW). 

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. 

End of year Forecast sales 10 1 2 3 4 5t Forecast selling Price /t Raw material costs /t product Sale income less operating costs 106 Net cash flow 106 Cumulative cash flow 106 (Project NFW) Discounted cash flow at 15 per cent 106 Cumulative DCF (Project NPW) 106 Project NPW at 25 per cent discount rate Project NPW at 35 per cent discount rate Project NPW at 37 per cent discount rate... 

Calculate the cumulative net present worth of the project, at a discount rate of 8 per cent. Also, calculate the discounted cash flow rate of return. 

Economic analysis can determine the discounted profitability criteria in terms of payback period (PBP), net present value (NPV), and rate of return (ROR) from discounted cash flow diagram, in which each of the annual cash flow is discounted to time zero for the LHS system. PBP is the time required, after the construction, to recover the fixed capital investment. NPV shows the cumulative discounted cash value at the end of useful life. Positive values of NPV and shorter PBP are preferred. ROR is the interest rate at which all the cash flows must be discounted to obtain zero NPV. If ROR is greater than the internal discount rate, then the LHS system is considered feasible (Turton et al., 2003). 

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