Economics future worth

The same methods that were explained and applied earlier in this chapter are applicable for replacement analyses. Net-present-worth and discounted-cash-flow methods give the soundest results for maximizing the overall future worth of a concern. However, for the purpose of explaining the basic principles of replacement economic analyses, the simple rate-of-retum-on-investment method of analysis is just as effective as those methods involving the time value of money. Thus, to permit the use of direct illustrations which will not detract from... 

Here we will discuss three different methods that you can use to choose the best economical alternative from many options. The three methods are commonly referred to as (1) present worth (PW) or present cost analysis, (2) annual worth (AW) or annual cost analysis, and (3) future worth (PW) or future cost analysis. When these methods are applied to a problem, they all lead to the same conclusion. So in practice, you need only apply one of these methods to evaluate options however, in order to show you the details of these procedures, we will apply all of these methods to the preceding problem. 

The key to performing any economic analysis is the ability to evaluate and conpare equivalent investments. In order to understand that the equations presented in Table 9.1 provide a comparison of alternatives, it is suggested to replace the equal sign with the words is equivalent to. As an example, consider the equation given for the value of an annuity. A, needed to provide a specific future worth, F. From Table 9.1. Equation (9JT) can be expressed as... 

In this formula, P is present worth or present value, F is future value, i is the interest or discount rate, and n is the number of periods. Economically, there is an additional factor at work in present value, and that factor is pure time preference, or impatience. However, this issue is generally ignored in business accounting, because the firm has no such emotions, and opportunities can be measured in terms of financial return. 

Another important consideration pertains to the metal content of the deposit. A deposit with a content of iron of about 20% can have little value as an iron ore since there are several deposits with 30-50% iron. Earlier, a copper ore with a minimum of 5% copper was regarded or accepted as a copper ore. However, today, thanks to advancements in technology, rocks with as little as 0.5% copper are mined and processed economically despite the fact that the price of copper, in comparison with those of some other metals, might be showing a downward trend. It is possible that in the future, other resources, which are not considered to be worth exploiting today (such as the manganese nodules or the clays), would become acceptable ores for manganese, copper, nickel, cobalt, and aluminum. 

So far we have explained how to estimate capital and operating costs. In Example 3.3, we formulated an objective function for economic evaluation and discovered that although the revenues and operating costs occur in the future, most capital costs are incurred at the beginning of a project. How can these two classes of costs be evaluated fairly The economic analysis of projects that incur income and expense over time should include the concept of the time value of money. This concept means that a unit of money (dollar, yen, euro, etc.) on hand now is worth more than the same unit of money in the future. Why Because 1000 invested today can earn additional dollars in other words, the value of 1000 received in the future will be less than the present value of 1000. 

Economic analyses may evaluate the effect of drugs or therapies over several years, and because economic analyses operate in the present, the costs and consequences that occur in the future have to be adjusted to reflect their present-day values. This process is called discounting - discoimting basically assumes that one unit of monetary (or health outcome) value is worth more today than it will be worth in the future, therefore, future emits have to be reduced to reflect this expected decrease in value. Question seven addresses the issue of differential... 

The Synfuel plant is a longterm Investment, I.e. till at least the year 2003. Its economic benefits will depend primarily upon what happens to the price of oil over the life of the project. When the decision to proceed with Synfuel was made in February 1982 the price of oil was US 28 per barrel. In November 1985 the price fell from US 28 per barrel to reach a low in 1986 of about US 9 per barrel. Since then the price has recovered to around US 18-20 per barrel. Such rapid fluctuations make it impossible to predict with any certainty the future economic benefits from Synfuel. Certainly it is not possible to make the project look good from an economic viewpoint at the present time. However, Table 2 shows that Synfuel should produce significant benefits in the medium and long term. Also in considering benefits it must be noted that condensate worth over NZ 70 million per annum is being obtained from the gas flow for the project. 

This report focuses mainly, but not entirely, on the economic side of the R D process. In this perspective, pharmaceutical R D is an investment. The principal characteristic of an investment is that money is spent today in the hope that even more money will be returned to the investors sometime in the future. If investors (or the corporate R D managers who act on their behalf) believe that the potential profits from R D are worth the investment s cost and risks, then they will invest in it. Otherwise, they will not. 

When using economic risk based curves in decision making it should be note that the chosen solutions should never be on the right side of the interaction point between the risk and investment curves. Because, from the economic investment point of view, the solution is not worth as the risk is higher than the cost of the system. In this considered example for Nam Dinh case, selection of the design return periods of less than 30 years leads to very high risk and is therefore a bad choice in this situation. Selection from 50 to 100 years return period is, therefore, recommended for the future planning of coastal protection in Nam Dinh. Invest... 

It is worth emphasizing that any new fuel technology currently suffers to some extent from the same dilemma. For example, at present in United States, at least, gasoline is so cheap and the fueling infrastructure is so well established that nothing else can compete with it economically unless and until huge investments are made. Furthermore, the society in the near future is likely to impose strict... 

In the future, economic analysis can be useful to NHTSA in building a reasonable explanation for its dedsion on passive restraints and can be useful to the Court in the determining of adequacy when there is at least nominal compliance with administrative law. The potential contribution of an individual benefit-cost approach and economic analysis to this traffic safety issue is worth considering. 

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