Estimated commercial return

Estimated commercial return = (commercial price - cost of goods) X predicted sales volume... 

When considering exploration economics, the possibility of spending funds with no future returns must be taken into account. A typical world-wide success rate for rank exploration activity is one commercial discovery for every ten wells drilled. Hence a probabilistic estimation of the reserves resulting from exploration activity must take into account the main risks and uncertainties in the volume of hydrocarbons in place, the recoverable hydrocarbons, and importantly the risk of finding no hydrocarbons at all. 

Detailed estimates similar to Table XIX were carried out for each case. The results are summarized and compared on Table XX. Factors used for labor, maintenance, taxes, and insurance are typical of those used for analyzing long-term, large scale commercial projects. The capital charge factor, the yearly rate at which the investment is charged to the project, was chosen to provide about a 15% after-tax discounted cash flow (DCF) rate of return on investment based on reasonable and commonly used assumptions for projects of this type and magnitude. These assumptions are summarized on Table XVIII. 

USDA economists found that publicly funded agricultural research earned an annual rate of return of at least 35 %. A 1966 study by the Agricultural Research Service (ARS) on the impact of its research from 1941 to 1966 concluded that 109 products and processes developed by ARS had been commercialized and 26 represented major contributions in basic research. Their value was estimated by the ARS at more than 6 billion, 20 times the 309 million spent by the ARS laboratories during this period.2... 

Best current projections for the proposed plant show a capital investment on the order of 1.0 billion in 1979 dollars. Economics based on this estimate will result in a rate of return far short of the hurdle rate required for total private investment. However, since a plant can not be on stream before 1985, the key question is the probability of coal liquefaction becoming commercially viable in the late 1980fs. This is entirely possible under certain conditions such as the following ... 

Of course, this is not to say that costs should not be minimized and potential complications, such as impurity profiles, etc., avoided by working with potentially commercial sources as early in the development process as possible. The problem is that only approximately 10% of phase I candidates will eventually be launched, and, furthermore, estimates of ultimate commercial demand will usually only become available toward the end of phase II. Suppliers may incur significant development costs before having any idea of the potential return, if, indeed, there is to be one at all. Obviously, this situation is not unique to chiral compounds and has lead to customers working with a selected number of preferred suppliers who gain access to a continuing number of opportunities. Speed of response will be one very important factor in making this selection. 

A financial analysis procedure specifically devised by Mossman (1989) for comparison of OTEC price estimates with other energy somces allows a valid comparison to be made of the relative commercial attractiveness of energy production methods. It establishes uniform guidelines to estimate the sales price that would return an acceptable profit for investors in alternative energy production systems. The Mossman procedure eliminates distortions and misunderstandings caused by failure to include the effects of government subsidies or hidden costs that differ widely among the various options. 

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