Present value, concept

Once the concept of discounting is accepted, the procedure becomes mechanical. The general formula for discounting a flow of money cooccurring in tyears time to its present value Cq assuming a discount rate r is... 

Various other evaluation schemes based on the concept of time value of money are also sometimes used. These, together with the Net Present Value and Rate of Return methods, are all grouped together under the title of discounted cash flow methods. 

Lastly, this chapter presents the concept of aggregation as a means of reducing the binary dimension in large-scale problems. In the examples cited, the objective values predicted by the aggregation model were very close to those predicted by the general formulation. However, the aggregation model requires a much smaller number of binary variables which is concomitant with significantly reduced computational effort. 

So far we have explained how to estimate capital and operating costs. In Example 3.3, we formulated an objective function for economic evaluation and discovered that although the revenues and operating costs occur in the future, most capital costs are incurred at the beginning of a project. How can these two classes of costs be evaluated fairly The economic analysis of projects that incur income and expense over time should include the concept of the time value of money. This concept means that a unit of money (dollar, yen, euro, etc.) on hand now is worth more than the same unit of money in the future. Why Because 1000 invested today can earn additional dollars in other words, the value of 1000 received in the future will be less than the present value of 1000. 

Comparing the presented management concepts in the value chain it can be concluded that concepts focus either on values or volumes and/or certain steps in the value chain as illustrated in fig. 16. 

Planning requirements for the specified value chain are elaborated in this chapter based on the value chain management framework established in chapter 2. Planning requirements are gathered from industry cases, research literature analysis and practice studies. A state of the art analysis of recent literature is conducted for these requirements in order to present recent concepts and applicable ideas and to specify research gaps. Requirements collection and coverage by state of the art literature is summarized at the end of the chapter also as input for the model development in the subsequent chapter. 

For HCI electrolysis the cathodic reaction product is water, which is easily drained through the ODC without affecting the membrane water content. Consequently, the ODC can be attached directly to the membrane and pressure compensation is not necessary. The cell concept, which was developed in another co-operation with DeNora, could not be simpler - the basic cell principle is shown in Fig. 4.6. Initial laboratory tests conducted in 1994 at Bayer on the basis of old GE developments [4] demonstrated the feasibility of HCI electrolysis with ODC and the potential for a reduction of the cell voltage to about one-third of present values. 

Is this a good investment Let us introduce the basic concept that money on hand is worth more than future money, or the time value of money. The net present value NPV is defined to be... 

Explain the concept and uses of discounted cash flow and related terms such as net present value . 

The results of early experiments showed that the temperature did not change on the expansion of the gas, and consequently the value of the Joule coefficient was zero. The heat capacity of the gas is finite and nonzero. Therefore, it was concluded that (dE/dV)Tn was zero. Later and more-precise experiments have shown that the Joule coefficient is not zero for real gases, and therefore (dE/dV)Ttheoretical concepts of the ideal gas. 

Radionuclides occur in the environment in such minute physical quantities that they are commonly referred to as being present at sub- or ultra-trace quantities. As an illustration of this Livens and Rimmer (1988) presented values relating the masses and specific activities of several artificial radionuclides and their typical concentrations in surface soils of the UK (see Table 7-1). This indicates the very small mass usually associated with one Becquerel of radioactivity, although as the half life of a radionuclide increases so does the mass per unit of radioactivity. The molarity concept is... 

Thus, equilibrium is achieved with 6 = 6 and a = cl for any Ki value. In fact, a transition to stage III will occur at higher Ki values since a higher speed equilibrium may be achieved without the environment being present. These concepts seem to be... 

TCDD. Tables IV and V present values currently assigned to various PCDD and PCDF isomers found in human tissues in an attempt to relate them to 2,3,7,8-TCDD (24-6). These values are subject to change, and may well be assigned different numerical values as new toxicology studies provide more data and toxic end points upon which to provide a less speculative basis of assigment. The concept of toxic equivalents... 

The sales budget, to be of value to the organization as a whole, must be related to future profits or rather to anticipated cash flow discounted to the present. The concept of cash flow can be described briefly as the difference between revenues and direct costs, not to include depreciation. It represents the amount of cash thrown off from the sales and production of a product regardless of the investment. Consequently, for each product in the sales budget, the anticipated cash flow for the coming year can be determined. 

Next, with another of his students, he turned to editing the book Industrial Gums. Now in its third edition, Industrial Gums is a praetieal book that deseribes the chemistry, properties, and applications of water-soluble or water-dispersible polysaccharides and polysaccharide derivatives with commereial value or potential. In the introductory chapter of this book, Professor Whistler presented important concepts about the relationships of structure to properties of polysaeeharides, an area he championed after it had been introduced by D. A. Rees. 

The economic analysis of investment alternatives generally entails the estimation of cash flows and the application of some measure of worth, such as net present value or the internal rate of return, in order to make a decision. The estimation of these cash flows requires the estimation of prices, whether they be the price of goods sold to forecast revenues or the estimation of wages to forecast labor costs. Over time these prices change. An increase in price is known as inflation, while a decrease in price is termed deflation. These concepts and their measurement are explained in this chapter. Cash flow analysis methods are revisited under the assumption of price changes, as their effects can be significant (Fleischer 1994). This is especially true when one considers after-tax cash flow analysis, as the effects of depreciation and taxes represent one of the most important aspects of investment analysis (Park and Sharp-Bette 1990). 

Since fixed-income instruments are essentially collections of cash flows, it is useful to begin by reviewing two key concepts of cash flow analysis discounting and present value. Understanding these concepts is essential. In the following discussion, the interest rates cited are assumed to be the market-determined rates. 

The average time until receipt of a bond s cash flows, weighted according to the present values of these cash flows, measured in years, is known as duration or Macaulays duration, referring to the man who introduced the concept in 1938—see Macaulay (1999) in References. Macaulay introduced duration as an alternative for the length of time remaining before a bond reached maturity. 

There are a variety of objective functions that are used for economic optimization. Some are quite elegant and incorporate the concept of the time value of money. Examples are net-present-value and discounted cash flow. These methods are preferred by business majors, accountants, and economists because they are more accurate measures of profitability over an extended time period. However, a lot of assumptions must be made in applying these methods, and the accuracy of these assumptions is usually quite hmited. The prediction of future sales, prices of raw materials and products, and construction schedule is usually a guessing game made by marketing and business managers whose track record for predicting the future is almost as poor as the weather man. 

The cash flow analysis in the example above neglects one very important point. It is important to recognize that 1 today is worth more than 1 tomorrow. With the 1 received today there is the potential of investing it so that it earns money. This concept is called present value, which is defined by the APICS Dictionary as the value today of future cash flows. The net present value considers the value today of future earnings (operating expenses have been deducted from net operating revenues) for a given number of time periods. ... 

Section I consists of five chapters on the concepts and modeling of e-supply chain. Chapters I and II deal with the modeling of e-supply chain management. Chapter III discusses the concepts of e-supply ehain and SME. Chapters IV and V present the concepts of e-services and service value network. 

When considering how long an investment in safety takes to achieve a return on that investment, one must consider the decreasing value of money due to inflation. For example, a safety manager expects it will take two years to achieve a return on a 1,000 investment today. The rate of return is estimated at 500 per year. However, because the value of today s money will decrease, the estimate should include that. That is the concept of present value. One can compute present value, PV, from... 

Keeping things simple, we will basically use two financial mathematical equivalences and the concepts of net present value (sometimes called net present worth) and annual equivalent benefits (or annual equivalent cost) (Sect. 12.6) to do all calculations for real-Ufe problems and project evaluations. Although it represents a limitation (not using more concepts and equations), you will be amazed at the wide variety of real-life and engineering problems that can be solved with these few rather elementary tools. Thus, we continue to meet our objectives, which are to (a) teach just a few concepts and (b) captivate you with the diversity of problematic situations that arise in process and bioprocess engineering. 

We have already described and analyzed all the financial mathematical tools needed for our calculations to fulfill the purpose of the chapter. Using these basic tools, we now introduce two concepts that are important for comparison and decision among alternatives (real-life situations and engineering projects). First, the net present value is one of the most common tools to economically evaluate projects. One of the limitations of NPV is when you are comparing two or more projects with different lifespans. Although this difficulty can be remedied, it could be cumbersome. Second, the annual equivalent benefits/costs has the advantage over NPV that you can compare projects with different lifespans. 

A commonly used concept in targeting is the net present value (NPV). This is a forecast of the overall profitability in real terms allowing for the costs of investments that must be made in order to achieve and support sales. An important part of the calculation of the NPV is the estimate of the time taken from launch to reach maximum sales. With any new PGR, except those in the best established markets, e.g. anti-lodging in cereals, more gradual uptake by users can be expected than with a conventional agrochemical. Therefore, the payback period on the investment in research and development for PGRs can be expected to be longer the more novel and unprecedented the invention. 

When thinking about capital costs, it is important to think about a concept sometimes referred to as the present value of money or the opportunity cost of money. This fluctuates based upon inflation and interest rates. Let s think about it with a very simple example. Imagine that if you spent 100, you could build a plant that could generate 120 beyond cost in ten years. You might consider a profit of 20 to be attractive. This is a 20% return on your initial 100. However, you need to remember that because you spent the 100, it was not available for other investments. Had you been able to invest the money in a bond paying 7.2% interest, at the end of ten years, you would have 200. So by investing in a plant and making 20, you have lost the opportunity to make 100 profit in a bond. You have effectively lost 80 in opportunity cost. This example is oversimplified and needs to reflect current interest rates as well as risks both with alternative investments and with investments for the project, but serves to illustrate that a dollar in the present is more valuable than a dollar in the future. This needs to be factored into a detailed cost estimate. 

The ideas discussed in Chapter 9 are extended to evaluate the profitability of chemical processes. Profitability criteria using nondiscounted and discounted bases are presented and include net present value (NPV), discounted cash flow rate of return (DCFROR), and payback period (PBP). A discussion of evaluating equipment alternatives using equivalent annual operating costs (EAOC) and other methods is presented. Finally, the concept of evaluating risk is covered and an introduction to the Monte Carlo method is presented. 

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