Investment, cumulative

The projected growth scenarios for conventional gas seem justified from the point of view of ultimately recoverable resources, and unlike for oil, no major discrepancies between projected demand and supply are to be expected in the coming decades. An important aspect of the future availability of natural gas, however, is the creation of the necessary infrastructure for the production and subsequent transport of the gas to the customer. The cumulative investments for the gas-supply infrastructure until 2030 are estimated to amount to US 3.9 trillion (IEA, 2006). 

Figure 14.18 shows the average specific hydrogen costs (including feedstock, production, transport and refuelling), and the cumulated investment in hydrogen infrastructure aggregated for all countries for the FlyWays base case scenario. 

Figure 14.18. Specific hydrogen supply costs and cumulative investments in the 10 HyWays countries (base case scenario with country-specific feedstock bounds and 20% LH2 demand) (HyWays, 2007).

The production projections are made by estimating net and gross cumulative investment for the projected period to allow assessment of the macroeconomic proportions. The gross value of crops is calculated and inputs are analyzed. The crop production growth is estimated by assessment of the sources of growth such as yield per hectare, arable land growth, and cropping intensity. This produces projected crops and, in particular, cereal yield per hectare. 

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. 

The proflt-to-investmentratio (PIR) may be defined in many ways, and is most meaningful when deflated and discounted. On an undeflated and undiscounted basis, the PIR may be defined as the ratio of the cumulative cash surplus to the capital investment. This indicates the return on capital investment of the project, is simple to calculate, but does not reflect the timing of the income/investment in the project. 

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. 

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. 

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). 

Figure 2.2 shows the cash flow pattern for a typical project. The cash flow is a cumulative cash flow. Consider Curve 1 in Figure 2.2. From the start of the project at Point A, cash is spent without any immediate return. The early stages of the project consist of development, design and other preliminary work, which causes the cumulative curve to dip to Point B. This is followed by the main phase of capital investment in buildings, plant and equipment, and the curve drops more steeply to Point C. Working capital is spent to commission the plant between Points C and D. Production starts at D, where revenue from sales begins. Initially, the rate of production is likely to be below design conditions until full production is achieved at E. At F, the cumulative cash flow is again zero. This is the project breakeven point. Toward the end of the projects life at G, the net rate of cash flow may decrease owing to, for example, increasing maintenance costs, a fall in the market price for the product, and so on.

In general, one or more of three methods are used to justify major expenditures. The first, payback, is a measure of the time it will take for cumulative benefits to equal cumulative costs (time to break even). This, by itself, may not be sufficient to compare alternative investments and projects competing for the same limited resources so one of two other methods may be used. These methods, Net Present Value and Internal Rate of Return, consider the earning power of money in making comparisons. Because investments earn compound interest, a dollar to be gained in the future has less present value than one gained today. The NPV is computed by estimating the yearly... 

Figure 18.3. Structure of the investments of the six HyWays countries (France, Germany, Greece, Italy, The Netherlands and Norway) in a hydrogen economy (cumulative for a ten-year period, hydrogen high-penetration scenario).

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). 

Other templates may be prepared for total capital investment, working capital, total product expense, general overhead expense, and casn flow. Table 9-29 may be used to organize cash flow data by showing investment, operating expenses, cash flow, and cumulative cash flow. 

It is possible to define different indexes to understand whether a venture will be profitable [13]. Here we consider the discounted break-even period [14]. This index is defined as the time that must elapse after start-up until the discounted cumulative cash-flow repays the fixed capital investment. The discounted cumulative cash-flow is the sum of expenses and gains sustained or earned in the lifetime of a chemical plant. All these sums of money need to be discounted to their present value. 

FIGURE 13.3 The cumulative amount of ketorolac as a function of time from elastic and rigid vesicle formulations across human skin in vitro. Elastic vesicles were clearly more effective as compared with rigid vesicles in the enhancement of ketorolac transport across the skin. The cumulative amounts found after 1 and 4 h of elastic vesicle treatment (corresponding to the time periods chosen for this study), however, were still very low. (Reproduced from Honeywell-Nguyen, P.L. et al., J. Invest. Dermatol., 123, 902, 2004. With permission from Blackwell Publishing.)... 

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