Investment criteria

The project cashflow forms the basis of the economic evaluation methods which will be described. From the cashflow a number of economic indicators can be derived and used to judge the attractiveness of the project. Some of the techniques to be introduced allow the economic performance of proposed projects to be tested against investment criteria and also to be compared with alternative investments. 

The same questions may then be asked for different values of the probabilities p and po. The answers to these questions can give an indication of the importance to the company of P at various levels of risk and are used to plot the utility curve in Fig. 9-25. Positive values are the amounts of money that the company would accept in order to forgo participation. Negative values are the amounts the company woiild pay in order to avoid participation. Only when the utihty value and the expected value (i.e., the straight line in Fig. 9-25) are the same can net present value (NPV) and discounted-cash-flow rate of return (DCFRR) be justified as investment criteria. 

Many companies apply a minimum rate of return, or hurdle rate, to express the opportunity-cost competition between investments. For example, if a firm can draw 10 percent interest on cash in the bank, then 10 percent would be a valid choice for the hurdle rate as it represents the company s cash opportunity cost. Then, in analyzing investment options under a return-on-investment criteria, not only would the highest returns be selected, but any project that pays the firm a return of less than the 10 percent hurdle rate would not be considered. 

In summaiy, the main points in this controversy are first, the contention by energy consei vation proponents that numerous investment opportunities currently exist to reduce energy costs. Further, these investment opportunities would meet the investment criteria noted above. Although there are lew challenges to this contention, it is not the center of controversy. Conservationists contend that the failure of private markets to make these investments is indicative of serious inefficiencies. Some economists dispute this contention and proi ide explanations ol why normal, well-functioning markets may defer on energy-efficient investments. 

The investment criteria discussed in this section are set out in Table 6.7, which shows the main advantage and disadvantage of each criterion. 

If the chain letter is successful, the end result is a profitable company valued on the basis of conventional investment criteria, i.e., price/eamings ratio. During the 15 to 20 years after formding that is typically required to achieve profitability, a biotech company will have had a constantly changing shareholder list. With the exception of a few visionary formders, these investors expect to make their money over relatively short hme frames. 

DARPA has a set of very strict investment criteria. There are seven key questions that must be answered by each program manager and that in turn must be answered by individual project leaders or principal investigators ... 

Different investment criteria for energy users versus regulated utilities. 

The matter of different investment criteria for energy users versus regulated utilities is exemplified by comparison of the feedwater heater project (41) to the cement kiln heat recovery project referred to above. The utility chose to replace the de-... 

Case conveyors should be long enough to accumulate the cases rather than having an extra operator to stack them off the system when the palletizer shuts down. The cost of the accumulation conveyor must be compared with the extra labor cost incurred by hand stacking the cases. Return on investment criteria should be used to make this decision. Case conveyors should be at least 10% faster than the... 

Equipment selection and recommendations are dependent on a proper cash flow analysis that includes costs and price shocks to inputs, capital costs (debt facilities, lines of credit), and products (Aden et al., 2002 Patwardhan and Joshi, 1999 Wooley et al., 1999). The ultimate goal hinges on investment criteria. Operation can be optimized to meet a certain level of output, maximize profit, maximize the return on equity/capital, or a combination of those that would depend on the investors and their priorities. 

Economics. Except where safety is concerned, economics is a primary consideration when evaluating auxiliary equipment and systems. Calculations of equipment capital and operating costs versus expected savings must be carefully evaluated to assure that they meet both operational needs and management s investment criteria. 

In yom case study you mention a 1000 toime/day plant, but in your conclusion you state that the system is only suited to plants with 3000 torme/day capacity. Could you clarify whether this is from the technological point of view or investment criteria ... 

The use of wastes as a fuel offers a great potential to reduce prime fuel consumption. At its Westbury Works, Blue Circle Cement has used pulverised municipal refuse to replace up to 20% of its coal. This development —which has been assisted by DoE funds—can potentially be repeated on most Works in the country. However, while the technology now exists to replace the prime fuel by municipal refuse, it needs capital investment to be applied. The financial investment criteria required to make this attractive to both local authorities and cement makers are not generally achieved, due principally to the availability of adequate landfill sites in most areas. There may also be a reduction in production capacity as a result of using lower grade fuels, which is costly when full output is required to meet demand. The use of gas generated from domestic... 

A decision making process should show the logic and assessment of how and why that risk was considered acceptable and how the level of risk did not unduly set in motion possible harm to any individual or group, environment, third party, etc. The decision to accept a risk should not be made on strictly return on investment criteria. It should consider the... 

---