Cash flows benefit

The assumptions of this study are premised on the commitment to a multi trillion dollar, centralized H2 production and delivery system in the U.S. over a thirty-year time period. Therefore, it is believed that the capital structure assumptions of 30% equity capital and 70% debt are more realistic for the assumed scale of capital investments. In addition, there are cash flow benefits to financing capital budgeting projects with debt capital rather than equity capital because interest on debt is tax deductible whereas dividends payments are not. The 7% interest rate for 30-year coupon bonds is a reasonable assumption for the assumed scale of investments, particularly so if a national H2 plan is adopted with government regulation and guaranteed bond issues. 

Multiyear projects with self-funding, short-term ivins. This allows the program to be sustained by its own cash flow benefits. Targeting immediate benefits satisfies the need of many executives for tangible results. 

Benefit of Early Cash Flows It pays to receive cash inflows as early as possible and to delay cash outflows as long as possible. 

Cost and benefit cash flows should be kept separate over time Anticipated benefit and cost should be tabulated for each year of the project s life... 

Because it is the goal of any business to make a profit, the costs-and-benefits cash flows for each option can be related to the basic profit equation ... 

Estimate the cash-flow profile for each alternative. The cash-flow profile should include the costs and revenues if they differ, for the alternative being considered during each period in the planning horizon. For public projects, revenues may be replaced by estimates of benefits for the public as a whole. If revenues can be assumed to be constant for all alternatives, only costs in each period are estimated. Cash-flow profiles should be specific to each alternative. We shall denote revenues for an alternative x in period t as B (t,x), and costs as C (t,x). By convention, cash flows are usually assumed to occur at the end of the time period, and initial expenditures to occur at the beginning of the planning horizon, that IS, m year 0. 

Perform sensitivity and uncertainty analysis. Calculation of life-cycle costs and net benefits assumes that cash-flow profiles and the value of MARR are reasonably accurate. In most cases, uncertain assumptions and estimates are made in developing cash flow profile forecasts. Sensitivity analysis can be performed by testing how the outcome changes as the assumptions and input values change. 

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. 

Once values have been assigned for the costs and benefits of each proposed risk-reduction modification, a variety of economic evaluation techniques may be used to choose the most attractive option. These techniques include net present value, discounted cash flow rate of return and cost-benefit ratio analyses. Most companies have a preferred method for evaluating project economics, which can be used with little or no modification. Chapter 8 of... 

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... 

The Net Present Value (NPV) of a capital investment is the equivalent total cash flow generated by all the acquisition s benefits less all the acquisition s costs computed over the life of the system on a year to year basis, adjusted for the value of money as reflected by such factors as finance rates, and projected ("discounted") to the present day. A dollar benefit projected for the system next year would only be worth 0.91 today if that dollar could be earning 10% interest. A net present value of zero means that the acquisition will, over its projected life, just break even and that it is therefore an acceptable purchase. A better than zero NPV would be a high priority purchase since it indicates a real profit. 

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. 

To be successful and competitive, research-based pharmaceutical companies must ensure that new discoveries are frequently brought to the market to generate cash flow. This is required to fund the next generation of compounds to meet the therapeutic needs of patients, and of course, to benefit the shareholders. This cycle of events is sometimes referred to as the product life cycle and is further illustrated in Figure 1.1. 

Outsourcing obviously reflects a wide range of benefits such as avoidance of capital expenditure, increased cash flow, minimized fixed assets by avoiding investments... 

The principal value of spreadsheets, other than their universal acceptance and use over the past decade, is the ability to display efficiently and use individual estimates of costs and benefits for each period over the life of the project, reflecting anticipated variability rather than a uniform average value or an approximate mathematical series. This will be discussed as each discounted cash flow method is presented. The principal disadvantage of a spreadsheet is that computational errors are hidden, even though an audit tool exists. However, the problem of quality assurance is not a new one, and the engineer must always be alert to the prevention and elimination of errors. 

In comparing alternatives to meet a need or an objective, plans (1) should provide the same quality and quantity (or level) of service and (2) should provide that service over the same period of time. Competing plans should be alternative ways to accomplish the same end. Any differences in expected revenue or other benefits must be credited to the plan providing the additional services. The analysis is concerned only with the dijferences in the cash flows between the alternatives. 

The present worth method compares all of a project s estimated expenditures to all of its estimated revenues and other benefits at a reference time called the present (/ = 0). For a particular interest rate, if the present value of the revenues and other benefits exceeds the present value of the expenses, the project is considered acceptable. The present worth of alternative j with cash flows that last of n periods of time at i% interest per period is... 

In rising stock markets, beta > 1 benefits from the index appreciation because the probability of rising stock prices and, therefore, to convert the bond will increase. Therefore, a greater beta determines a greater cost of capital and consequently a lower present value of cash flows. This means that the target price of the underlying asset will be lower, reducing the conversion premium. 

Takeovers do not automatically come at bondholders expense if an acquisition secures and enhances the own market position or opens up new business areas, bondholders profit as well. Only a competitive company can generate the cash flows necessary to pay interest and principal. If an acquisition is cautiously financed (e.g., neutral with respect to debt ratios) or the issuer is bought by another company with a higher rating, bondholders will also benefit. ... 

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