Finance charges

A company has sold bonds to finance a new chemical plant. The bonds are to be redeemed in 4 years for 16,000,000. The plant makes a profit of 2,000,000 per year. All interest and financing charges have been included as outlays. Assume the plant will run for 8 years. What is the rate of return ... 

Reduced construction loan finance charges and increased profitability. 

PREPA is comparable with Chino, but was built six years later. The PREPA PCS is an improved version of the Chino PCS, and both were built by GE. BoP cost includes US 600K for load interface, US IM for finance charges, USS 4.7M for building the facility, and US 1.8M for services. 

Table 3.6 gives numerical values for material quantities, unit costs or credits, and total direct costs or credits involved in each fuel-cycle step and calculates the overall net direct cost for lot 2A as 26.4 million. A total of 27.8 million is paid out for UF and fabrication in transactions 1 and 2 before any revenue is received from the sale of electricity. Because of this delay in receiving revenue, the total fuel-cycle cost includes also charges for carrying the 27.8 million advanced several years before it is recovered through revenue from the sale of electricity. Similarly, there is a financing charge on the net credit of 1.4 million in steps 3 throu 6, delayed until after revenue is received from the sale of electricity. 

The assumptions going into the calculation of direct costs in Table 3.6 will be described first. Then the procedure for calculating financing charges will be described, and finally a value will be given for the complete fuel-cycle cost. 

Financing charges. A company generating electricity that pays out Z dollars for fuel-cycle costs f years before it receives revenue from generation of electricity from that fuel must pay to the bondholders and stockholders who advanced the funds for the fuel the return they require on their investment, and must also pay income taxes to the government on the profits from which the stockholders return is obtained. It is possible to represent all of these financing charges as the product yZt, where y is known as the atmual cost of money before income taxes. For a privately owned U.S. electric company, a value of / = 0.151 per year is representative. 

If credit for plutonium and uranium is received at a time fy" later than tp, an additional financing charge is incurred on the value of this uranium and plutonium, Zy" + Zp, for the time interval fy" — tp, equal to the product of y and the area F, (Zy" +ZpXty" tp). 

After the process information has been integrated into one or more flow sheets, the economic aspects of the design are next considered. This involves (1) an estimate of the types and sizes of equipment and materials, buildings, ground area, and utility facilities (2) a determination of what the process will cost based on physical facilities and construction charges (3) a cost estimate of utilities consumption (steam, electricity, water, fuel), labor and supervision personnel requirements, maintenance and repairs, raw materials, and finance charges (interest, taxes, insurance, medical benefits, etc.). 

What is the industry supply chain cost associated with these days of finished goods inventory One study su ested that the cost of this inventory is 5% of industry sales. This cost reflects additional investments in property plant and equipment, warehouse capacity and material handling, financing charges for inventories, and additional costs for premium transportation. 

Annual debt-servicing costs, exduding amortization (i.e., just interest and finance charges), are also considered as costs, but these are part of the finandal cash outflows and should not be considered as part of the operational cadi outflows in finandal analysis. However, both depreciation and interest costs affect the taxable income level and therefore tax payments and net aftertax income. It is therefore necessary to project annual income statements for the purposes of estimating tax payments prior to preparing a cash flow statement for either finandal analysis or discounted cadi flow analysis. 

Evaluation should include all tangible benefits and intangible benefits. The above table is indicative only to demonstrate the relative importance of investments. The actual limit of DCF yield is set by each company depending on financing charges, depreciation rate for a capital asset and the life cycle of the product. 

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