Economic evaluation payback period

If an option proves to be technically ineffective or inappropriate, it is deleted from the list of potential alternatives. Either follo ving or concurrent with the technical evaluation, an economic study is performed, weighing standard measures of profitability such as payback period, investment returns, and net present value. Many of these costs (or, more appropriately, cost saving may be substantial yet are difficult to quantify. (Refer to Economic Considerations Associated with Pollution Prevention.)... 

A life cycle cost analysis was done to evaluate the economic attractiveness of the various measure sets. Included in the analysis is the impact on equipment sizing, usually a saving. The sizing changes can result in a significant cost reduction for the measure sets. In order to realize the payback periods shown, equipment must be sized in accordance with load reductions. 

After totaling the scores you can see that implementing a first-in first-out material policy should be evaluated before an ion-exchange unit. The next step is to evaluate its economic feasibility and associated payback period. This can be done in the following section. 

A profitability worksheet is a simple economic evaluation intended to calculate rough estimates of projected costs, savings, and payback periods associated with each waste reduction option. These worksheets do not take into account amortization, depreciation, or tax factors. 

Investment decisions are often based upon several criteria, such as annual return on investment (ROI), payback period (PBP), net present value (NPV), the average rate of return (ARR), present value ratio (PVR), or the internal rate of return (IRR). Discounted cash flow rate on return (DCFRR) is another popular means of evaluating the economic viability of a proposed project. Horwitz [1] recommended the DCFRR as the best means to determine the return on investment, because it accounts for the time value of money. The internal rate of return as an investment criterion gives the possibility that given cash flows may result in more than one internal rate of return. Cannaday et al. [2] developed a method for determining the relevance of an internal rate of return. They inferred that an internal rate of return is relevant, if its derivative with respect to each of the cash flows is positive. 

Multi-objective optimization (MOO) has attracted considerable attention from researchers in chemical engineering, particularly in the past decade. Reported MOO studies have mainly used criteria such as selectivity, yield, productivity and/or energy consumed see Chapter 2 for the chemical engineering applications studied since 2000 and the objectives used in them. However, profit, an important criterion in any commercial operation, was not used in many of these studies. Apart from the simple profit, several economic criteria such as payback period (PBP), net present worth or value (NPW or NPV) and internal rate of return (IRR) are popular for evaluating projects in industrial practice. Edgar et al. (2001) compared the pros and cons of these three profitability criteria. Studies by Huskies (1997) and Pintaric and Kravanja (2006), show that optimal solutions of chemical processes are dependent on the economic objective selected. This indicates the conflicting nature of some, if not all, economic objectives, which means MOO is probably required even if one is interested in only the profitability criteria. 

Once aU the costs (and savings) associated with each solution are identified, financial tools for rating investments, familiar to many businesses, are then used to evaluate the economic added value of each option net present value (NPV), internal rate of return (IRR) and payback period. Additionally, C02-equivalent savings are assessed to identify environmental benefits of each solution. 

The economic evaluation studies are based on normative criteria, independent of subjective opinions, which indicate preferences in any course of action. Every alternative is independent of the other ones and the measure of the economic preferences is made separately. Renkema and Berghout [10] distinguish four basic approaches to evaluate investment alternatives the financial approach, the multicriteria approach, the ratio approach, and the portfolio approach. Methods from the financial approach are usually recommended for the evaluation and selection of investment alternatives. Often used financial approach methods are the payback period (PP) method, the internal rate of return (IRR) method, and the NPV method. The latter is used to evaluate this project. 

Figure 6.3 Evaluation of economic sustainability. OSBL, Outside the battery limits WC, working NPV, net present value FCI, fixed capital investment DPBP, discounted payback period DCFROR, discounted cash flow rate of return.

In this research, the Desalination Economic Evaluation Program (DEEP) as spreadsheet tool originally developed for the IAEA by General Atomics has been applied to compare the results. Cost flow rates of product, net power product and simple payback period time in each scenario are determined in Table 6. 

An economic evaluation is carried out by using the standard measures of profitability, such as payback period or discounted cash flow techniques (internal rate of return and net present value). Each company uses its own economic evaluation procedures and criteria for selecting projects for implementation. In performing the economic evaluation, planners must consider various costs and savings. As in any project, cost elements can be grouped into capital costs and operating costs. 

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