Financial appraisal

Any presentation to the organization s senior management, besides giving the technical details, should include a financial appraisal, which could be on a simple payback basis. However, other methods are available, such as return on capital employed and discounted cash flow (DCF). 

During the research and development phases of a project financial appraisal can and should be carried out frequently, in order to check that the process under review still constitutes an efficient use of resources. For instance, evaluation of the results of basic research or pilot scale versions of the process etc. are valuable exercises, provided sufficiently accurate information can be generated to enable a confident decision to be made concerning a positive commitment to the next stage of the project. Such information is additionally important since it highlights any inter-relationships between the various steps in the process and the final cost of the product, and indicates those operations where further efforts in process development can give the greatest beneficial effects on the cost of the product. 

Financial appraisal techniques are a vitally important aspect of commercial biotechnology, but it is often very difficult to gather authentic data to illustrate the... 

The financial appraisal is normally undertaken quite early in the life of the project, well before the final designs are complete, so a great deal of the cost calculation is based on the skill of the estimator, and much of it is done by factoring on known figures (such as how much a similar plant cost in another place or at another time). As it is an estimate, the final figure will prudently include a contingency allowance - the better the estimate is believed to be, the lower this contingency needs to be. 

In order to carry out a proper financial appraisal, the net cash flow figures must be calculated as inputs to the project s funds for each year of its operating life. Although these sums actually arise throughout the year, they are conventionally taken as arising on the last day of the year. 

The main object of a financial appraisal is to answer the question relating to the project, is it worth undertaking it . This is not the same as will it be profitable , but rather will it be adequately profitable . 

The financial appraisal process must be able to answer both of these basic questions what can this project earn, and which of several alternative projects is the best, economically ... 

The project financial appraisal process is now a question of taking the calculated investments, made in the assumed way, and comparing them... 

For any project, the repayment of the loan must effectively come out of its proceeds over the years, i.e. the total net revenues (cash flow) must be at least as large as the amount borrowed, on top of the other costs of construction, etc. However, the repayment element of the loan is not included in a financial appraisal, because its equivalent in plant cost has already been included in the balance as part of that cost. (An alternative way of looking at this is that the company, in paying back the loan, is just replacing that part of the original cost with an equal but differently sourced sum of money.)... 

There are some other aspects of financial appraisal that need consideration. 

The future CF values are discounted over time to the present time. There are two main discounting methods used for the financial appraisal of investment projects the net-present-value method (NPV) and the internal-rate-of-return method (IRR). 

Due to the similarities (same chemicals, etc.) a risk assessment for the PI plant can be based on that of the conventional plant. Additional information will be required from the outside consultants concerning the risk assessment of the new PI equipment. A technical feasibility study could be carried out in house, but to be more accurate this would be run in close conjunction with the outside consultants. Finally, a rigorous financial appraisal can be carried out in house, but will require some input from the outside consultants with regard to the capital cost of the new PI equipment. 

With all the information gathered from the risk assessment, technical feasibility study, financial appraisal and design concepts, as well as the input from outside consultants and companies, a comprehensive and accurate case for a PI solution can be put forward. 

The process of financial appraisal should take into accoimt both short- and long-term costs taking note that some of tiie figures will be estimated as the market value may fluctuate with supply and demand. 

The objective of appraisal activity is not necessarily to prove more hydrocarbons. For example, appraisal activity which determines that a discovery is non-commercial should be considered as worthwhile, since it saves a financial loss which would have been incurred if development had taken place without appraisal. 

Petroleum economics provides the tools with which to quantify and assess the financial risks involved in field exploration, appraisal and development, and allows a consistent approach with which alternative investments can be compared. The techniques are applied to advise management on the attractiveness of such investment opportunities, to assist in selecting the best options, and to determine how to maximise the value of existing assets. 

In the absence of a rislc allowance the cost of capital becomes a technical financial computation based on sources of funds and company policy. As such it will usually be presented as a figure specified For use in a particular appraisal and is therefore of little concern to the projec t assessor. However, the following resume indicates the lands of Factors to be considered. 

Significant capital expenditure usually represents a substantial commitment of the resources of a business, both financially and in terms of man-hours. It is therefore incumbent upon management to ensure that proposals for such outlays receive proper and full consideration of all the relevant implications before implementation. Once policies as to levels of authorization and commitment are laid down, there should follow the formal appraisal of the financial effects of the proposal. These can be formulated only after detailed discussion with the appropriate departments as to all the physical, technical and environmental factors involved in making the final decision. There will also be brought into consideration, where pertinent, the marketing and sales effects. 

In order to make the best possible use of valuable financial and other resources, and to minimise the uncertainty involved in making irreversible decisions, appraisal techniques are vitally important. These can be technical, legal, regulatory, commercial or financial in nature, for instance market forecasting and patent protection. Critical path analysis is... 

A real profit/loss account will normally have more items in it than the skeleton of Table 1, but the format given here shows the most important items. This account is less useful in the investment planning decision, since it does not concern itself with financial resources, but the calculation of profit, as shown in Table 1, is a vital component of the appraisal process, as will be seen later in this chapter. 

Therefore, the specification should identify how the costs and benefits of a standard are to be assessed and the approach to be used. At its most basic level, it will include an appraisal of the extent of failure for a particular standard and an approximation of the financial cost of reducing that failure. Clearly, contamination by some chemicals will be more difficult and costly to mitigate than others. 

It is important when appraising by (NPV) and (DCFRR) not to consider the past in profitability estimations. Good money should never follow bad. It is unwise to continue to put money into a project if a more profitable project exists, even though this course may involve scrapping an expensive plant. Other considerations may, however, outweigh purely financial criteria in a particular case. 

Ida helped many members of the family. After the death of Ida s mother, Ida s father lived with her. She gave Mae and Sam financial help, so that they both could attend the University of California. Ida s twenty year old brother Sam appraised her in a letter he wrote on July 18, 1934 ... 

The lack of spoken rewards was compounded by the lack of financial rewards. The 5.50/hour appraisal of my worth was simply not enough to support my financial needs or my self-esteem. The measly 2.75 I earned for cleaning one room took a lot of rooms to add up, and by the end of the month I was barely able to pay my bills and buy some food. (My mainstay became sixty-two cent, generic macaroni and cheese dinners.) Because the flow of travelers kept the motel full for only a few months of the year, during some weeks I could only work halftime, making a mere 440.00 a month. As a result, one month I was forced to request an extension on my rent payment. Unsympathetically, my landlord... 

National Health Service. The government does not have to adhere to the recommendations by the NICE in its guidance and financial payment to health care providers. However, many believe that a negative recommendation from the NICE will have a detrimental impact on the pricing, reimbursement, and sales of the appraised product not only in the United Kingdom but also throughout Europe, Australia, and Canada. 

An article by Ellen Stark in the November 1996 issue of Money provides a more favorable appraisal. The spending program of the ACS is listed as 70.2% of its 382 million income. This, however, does not cite research as such. And it may be noted that the ACS is involved in information dissemination, for example, the publication of journals and reports. Otherwise, it may be asked just what is to be included in programs Does this, for instance, include financial investments ... 

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