Funding cash flow

DecoveTj of Capital. In Figure 1, the annual book depreciation is used to retire the fixed capital investment. Whereas this accounting model does not correspond to the typical money flow, it is one possible model for recovery of capital. This model assumes that the investment is reduced each year by the amount of the annual depreciation. Another model (22) assumes that a uniform yearly book depreciation payment is made to an interest-bear sinking fund that accumulates to the depreciable fixed capital amount at the end of the venture. Using this second model, the investment is outstanding throughout the lifetime of the project. This also does not correspond to the actual money flow in most cases. ProfitabiUty analysis utilizes a third model based on discounted cash flows. 

As indicated in Section 30.7, energy-conservation measures cost money, and in spite of the likely results indicated by any of the methods available (simple payback, discounted cash flow, etc.) it is possible that the organization s funds are not available for such schemes. Alternatives that should be considered are ... 

With approval by the FERC of the 1978 R D program, GRI began to negotiate and let contracts for a supplemental program, largely in the areas of unconventional natural gas supply and gas conservation. Since the FERC funding mechanism did not become effective until June 1 and cash flow from interstate sales and transportation services did not start until late summer,... 

Cash flow is the amount of funds available to a company to meet current operating expenses. Cash flow may be expressed on a before- or after-tax basis. After-tax cashflow is defined as the net profit (income) after taxes plus depreciation. It is an integral part of the net present worth (NPW) and discounted cash flow profitability calculations. 

Cumulative Cash Position Plot A pictorial representation of the cumulative cash flows as a function of time is the cumulative cash position plot. All expenditures for capital as well as revenue from sales are plotted as a function of time. Figure 9-11 is such an idealized plot showing time zero at start-up in part a and time zero when the first funds are expended in part b. It should be understood that the plots have been idealized for illustration purposes. Expenditures are usually stepwise, and accumulated cash flow from sales is seldom a straightline but more likely a curve with respect to time. 

Effect of interest rate on cash flow (time zero occurs when first funds are expanded). 

Accrual basis The accounting method that recognizes revenues and disbursement of funds by receipt of bills or orders and not by cash flow, distinguished from cash basis. 

For economic evaluation purposes, another definition of working capital is used. It is the funds, in addition to the fixed capital, that a company must contribute to a project. It must be adequate to get the plant in operation and to meet subsequent obligations when they come due. Working capital is not a one-time investment that is known at the project inception, but varies with the sales level and other factors. The relationship of working capital to other project elements may be viewed in the cash flow model (see Fig. 9-9). Estimation of an adequate amount of working capital is found in the section Capital Investment. ... 

Cash flow and income statements identify the flow of funds through a business... 

The most important part of the job is keeping the business of existing customers. Without an adequate business base, there is insufficient positive cash flow to fund territory development. Also, it is easier to keep existing customers than to obtain new ones. 

The situation was spiralling downwards with actuate cash flow problems the early part of the winter 2002-2003. If the necessary funds needed to cover the cash shortfalls were made available it is believed that the downward spiral could be halted, and the system would start to recover. However, without the appropriate financing the prospect for the energy sector - and thereby the population and the industry - is deemed rather dismal, and the effect on the social structure of the country should not be underestimated. 

Figure 5 Estimates of the cash flows in GEL deemed necessary for funding the power system and to comply with the results of Figure 1, Figure 2 and Figure 3. (1 GEL corresponds to US 0.46 - economic conditions as per September 2003)...

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. 

Income-tax laws permit recovery of funds by two accelerated depreciation schedules as well as by straight-line methods. Since cash-flow timing is affected, choice of depreciation method affects profitability significantly. Depending on the ratio of depreciable to nondepreciable assets involved, two projects which look equivalent before taxes, or rank in one order, may rank entirely differently when considered after taxes. Though cash costs and sales values may be equal on two projects, their reported net incomes for tax purposes may be different, and one will show a greater net profit than the other. 

Figure 6-1 shows the concept of cash flow for an overall industrial operation based on a support system serving as the source of capital or the sink for capital receipts. Input to the capital sink can be in the form of loans, stock issues, bond releases, and other funding sources including the net cash flow returned to the... 

The tree-growth concept, as shown in Fig. 6-1, depicts a trunk output to start the particular industrial operation designated as the total capital investment. This total capital investment includes all the funds necessary to get the project underway. This encompasses the regular manufacturing fixed-capital investment and the working-capital investment along with the investment required for all necessary auxiliaries and nonmanufacturing facilities. The cash flow for the capital investments can usually be considered as in a lump sum or... 

Designate the discounted-cash-flow rate of return as i. This rate of return represents the after-tax interest rate at which the investment is repaid by proceeds from the project. It is also the maximum after-tax interest rate at which funds could be borrowed for the investment and just break even at the end of the service life. 

Lines 1, 2, and 3 (investments) in Table 2 would normally only be filled in for the first column (discount factor of 1.000) which is designated as the zero year for the operation, with the unit actually going into operation at the start of the so-called first year. It is assumed that working capital and salvage value will be recovered in a lump sum at the end of the estimated service life, so these values are listed on lines 1, 2, and 13 as positive (incoming funds) numbers in the end-of-life column. Since these are lump-sum instantaneous values, the discount factor to apply to them is the finite (year-end) cash flow factor as shown in line 14 in the end-of-life column. 

Take into account how this approach differs from that for NPW analysis. The project lives, rC/s, TACs, depreciation, undiscounted net cash flows, plant lives, and tax rate are the same as those given for Example 18.5, on NPW analysis. However, in this present example, the hurdle (discount) rate is not an input. In Example 18.5, the hurdle rate was an input and, based on this rate, the net present worth was calculated for each project. In this example, by contrast, the net present worth is arbitrarily set to zero and the unique discount rate that produces a NPW of zero is solved for. This discount rate is the internal rate of return (IRR). The project with the higher internal rate of return is selected as the one to be funded. 

The levelized prices of PV electricity and H2 are derived by net present value cash flow analysis. The net present value cash flow method is described in Appendix A.l. A straight tine, ten-year depreciation schedule is applied with an annual depreciation rate of 9% of capital. The levelized PV electricity and H2 prices are derived by choosing PV electricity and H2 prices to generate a revenue level that results in a cumulative, net cash flow stream with a 0 net present value over the thirty-year capital recovery period. The annual net cash flow streams are discounted at the present value of the 6%-discount rate. Investment funds are allocated in year 1 construction occurs in year 2 and H2 cash flow begins in year 3. The modular design of PV electrolysis plants and H2 distribution systems enables the rapid initiation of H2 marketing and cash flow. 

Frmds are continually required for equipment replacement, land improvement, and plant expansion, when economic conditions are favorable. Because funds for a project were originally provided by management, the division must return them as depreciation or depletion. Also, use of their capital management requires a profit. The sum of profit and depreciation or depletion constitutes cash flow. 

We believe that the visible successes of Cain, Huntsman, and a few other industry insiders (e.g., George Harris, Hal Sorgenti) have in recent years attracted a lot of imitators, especially financial buyers, into the chemicals sector (Fig. 8.1). Industry observers point out that given the low public valuations of chemical assets and the unprecedented levels of uninvested funds available today (shown in Fig. 8.2), chemical businesses make ideal LBO targets. Their logic is that the basic industrial sectors, such as chemicals, have reasonably predictable cash flows, unlike the... 

Depreciation charges are the most common type of tax allowance used by governments as an incentive for investment. Depreciation is a noncash charge reported as an expense, which reduces income for taxation purposes. There is no cash outlay for depreciation, and no money is transferred to any fund or account, so the depreciation charge is added back to the net income after taxes to give the total cash flow from operations. 

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