Period forecast base

It is important for firms to project their cash flow. This ensures that they will have funds on hand to pay their bills and their payroll and to invest in new projects. Cash flow is watched carefully by the finance department, because it is possible for a firm to make a profit on paper and still go broke because they do not have the cash needed to pay bills. When a firm invests in a new plant or new equipment, someone estimates the cash flow to calculate how the investment will influence the firm s ability to pay bills and dividends. In the example above the expenses were shown only as fixed or variable and the calculation was not concerned with the time period in which the expenses had to be paid. Likewise, the sales revenue was calculated on a per unit basis, but the sales may come at different time periods and some of the money for the sales may not be collected immediately. Based on historical records and contracts with suppliers and customers, the firm estimates its cash flow over the relevant time period. The cash flow analysis is shown in Table 3.1 for the example above. The cash flow analysis provides new information that the break-even analysis did not provide. It uses the period-by-period forecast to estimate when the firm will receive money and when it will pay out money. For the first seven months of the project the firm will have negative cash flow of 56,000. Then as sales pick up it will alternate positive and negative cash flows. Part of the reason for this is that revenue will be received 30 days after the product is sold, but the expenses to produce the product will be paid the month earlier. 

Period Forecast demand (based on iast period) Actuai demand Deviation ... 

The specific consumptions shown are forecasts for the period 2010 to 2020 based on the prototypes available today. In the long term, an increasing share of hybrid-vehicle... 

Table 1 provides a forecast of the United States and world sulfur supply and demand for the years 1985 and 2000. Table 1 also includes estimates of the identified recoverable world sulfur reserves using 1978 technology at 1978 sulfur prices and at all price levels. A visual representation of the importance of price in determining the availability of sulfur is provided by Figure 1. Note that this figure is based on the assumption that these quantities of sulfur will be produced only if the sulfur price levels are maintained for a sufficient period of time. 

The principle of the NPV method is to forecast over time all cash flows associated with an investment. Each period s net cash flows are then discounted to the present.29 As discount rate usually the company s cost of capital is used because in this case a positive NPV indicates that the investment increases the company s value (cf. Rappaport 1998, p. 37 see Appendix 1 for a detailed discussion of how to derive the appropriate discount rate). The calculation of the NPV is based on the following formula ... 

The estimated future U. S. requirements of hydrogen for petroleum refining are based on the forecasted quantities of crude oil, natural gas liquids (NGL), synthetic crudes, and imported crudes shown in Table 4. During the 1980-2000 period, U. S. crude runs will increase from 15.3 to 18.0 million B/D while the total U. S. liquid hydrocarbon supply, including product imports, will increase slightly from 19.7 to 21.1 million B/D. The total liquid supply corresponds to 40 and 43 Quad/year for 1980 and 2000. By the year 2000, there will be a substantial increase in the quantity of residuum converted due to an overall increase in the quantities of heavy crudes in the crude slate. 

The project team must detail all past costs that the project has incurred since its inception (start of EvP) on an annual basis. In addition, an annual project financial information table (ProFIT) data sheet should be presented. This sheet contains the revenue and cost forecasts for the upcoming ten-year period. It computes net present value (NPV) of future cash flows and return on capital employed (ROCE) automatically. At this stage, the team is expected to include detailed production costs data as well as estimates of plant costs (based on an engineering estimate, for example). The ten-year projection should be provided for three scenarios base, optimistic, and pessimistic. These cases are not meant to be simple percentage changes of the sales projections. Instead, the team should try to identify the drivers of the project s success and construct alternatives for the future that lead to different results for the project. The base case should be the most likely case. The optimistic scenario should be based on the positive development of some (not all) key success factors. The pessimistic scenario is usually the minimum feasible case, meaning a situation where the organization would still prusue the project, but some factors do not develop in a positive way. 

Furthermore, the difficulties encountered with using forecasts as a primary basis for allocations in the new Member States can expected to re-emerge in the preparation of the second NAP. Under the current rules, the 2008-2012 NAPs in new Member States would have to rely on forecasts made in 2006 for a period that is two to six years from then, well beyond a reasonable time-span necessary for the predictability that is required when distributing valuable assets. (The outcome of the public consultations on forecasts in Hungary was discussed above in detail.) The proposed total quantities will therefore be based more on the outcome of a political process that decides on the level of emissions that is considered acceptable. It was mentioned before that reducing CO2 emissions is not a primary political objective in countries that are still far from their Kyoto Protocol targets. We should not therefore expect very ambitious proposals. 

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