Cash Flow analysis, discounted

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...

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. 

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. 

Using discounted cash flow analysis, identified the SMR-PSA system as the technology to provide lowest cost hydrogen ( 3.38/kg) for small-scale, small production volume FiFAs. 

The influence of different factors subject to uncertainty can be assessed by a sensitivity analysis. The most probable values are attributed to the base case. Then alternatives are generated by allowing errors in each factor, as for example variations in prices for raw materials, products or utilities, or different interest rates. The discounted cash flow analysis can determine which are the cost elements having the strongest influence on the NPV and DCFRR, and which are unimportant. This type of analysis is relatively simple to be done with a spreadsheet. The formulation of the problem in term of ratios can bring useful insights. 

Discounted cash flow analysis can be completed on the net operational cash flows for alternative competing investment projects for opportunity and prefeasibility studies. 

The basic assumption underlying the discounted cash flow analysis is that there is a time value and a risk value for money invested over time. For example, a given sum of morrey available now is worth more than an equal sum available in the future. The difference can be expressed as a percentage rate indicating the relative change for a year (or any other time period, if required). Consider that a project may obtain a certain amount of funds, F, which is required to be repaid after one year, including an agreed amount of interest, I, then the total sum to be repaid at the end of one year would be (F+I), where... 

Occasionally, one can come across a discounted cash flow analysis in wiiich the annual net cash flows change... 

Discounted Cash Flow Analysis 26 5.44 Growth Share Matrix 5 1.06... 

The optimum or economic thickness of insulation is determined by optimizing the cost of energy and the costs of insulation. A discounted-cash flow analysis of insulation economics must be conducted using appropriate costs for investment and amortization periods. Insulation for energy conservation is an excellent investment and when optimized, a balance between investment and savings will be obtained. 

For an overall simplified and standard approach to the economic appraisal calculations, reference is made to NACE, RP-02-72 (direct calculation of economic appraisals of corrosion-control measure, based on the method of discounted cash flow analysis.)... 

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