Purchasing power

Minimising energy consumption per ton of alurnina while maintaining a steam-power balance is an industry-wide, ongoing effort. Reduction of steam consumption has been limited by the cost of purchased power to compensate for loss of power generation. 

Equations (9-59), (9-60), (9-61), and (9-62) may be used as they stand to assess expenditure on energy-conservation measures since a constant amount of energy is saved in each year subsequent to the capital outlay. However, the annual cash flows Acf corresponding to the energy savings remain constant only if there is no inflation or if the money values are corrected to their purchasing power at the time of the capital expenditure. 

Published figures for inflation rates are based on some particular mixture of goods and sei vices that is chosen to represent the material wants of the average citizen. If a given quantity of this specific mixture cost 100 last year and now costs 120, then the mix has suffered a 20 percent rate of inflation. The purchasing power of the currency (i.e., of the 120) in respecl of these goods and sei vices has consequently fallen by a factor of ( 120 — 100)/ 120, or 16.7 percent. 

Ejfect of Inflation on (NPV) When computing the (NPV) for a proposed project, error arises if the actual cash flows are simply added together instead of adjusting all the values to their purchasing power in a particular year. The reason hes in the basis of (NPV) calculations. We all rewrite Eq. (9-57) to give... 

Equation (9-110) enables all the net annual cash flows to be corrected to their purchasing power in Year 0. If the inflation rate is zero, Eq. (9-110) becomes identical with Eq. (9-109). 

Table 9-15 shows that the total amount of tax actually paid over the 5-year period was 988,320. This becomes 5.34,272 in uninflated-money terms when the tax for each year is corrected to its purchasing power in Year 0, using / factors for the 20 percent inflation rate employed for the example. Calculations for other rates of inflation can also be made, and the results plotted as in Fig. 9-.30. 

This confirms that although the tax paid will increase with inflation, the gain to the government is more apparent than real. It is interesting to note that although the tax paid corrected to its purchasing power in Year 0 is almost constant irrespective of the inflation rate, it does go through a maximum at an inflation rate of about 17 percent in this example. 

The onset of general inflation does not change the value of the contribution efficiencyT, as can be seen from Eq. (9-119), and it does not affect the value of if the cash flows in Eq. (9-1 IS) are converted to their purchasing power in Year 0. Thus, general inflation does not cause the measured-survival function to change. 

Let us consider the effect of differential inflation on the overall profitability of the project of the last example. The effect of general inflation on this project showed that the apparent profitability rises sharply, to an (NPV) of 431,269 at a general inflation rate of 20 percent. However, when the cash flows of the (NPV) are properly corrected to their purchasing power in Year 0, the (NPV) instead becomes 208,733. 

The effect of differential inflation on this project emerges in Fig. 9-35, with all (NPV)s corrected to their purchasing power in Year 0. The top line shows (NPV) for various rates of general inflation. The bottom line shows (NPV) for the differential-inflation case in which only the costs are allowed to increase while product selling price and thus cash income remain constant from year to year. The middle hne shows the effect of general inflation when the price rises are delayed by I year. The figure confirms that both of these situations take away from the attractiveness of the project. 

The effect upon total taxes paid, when they are corrected to their purchasing power in Year 0, is shown in Fig. 9-36. Differential inflation not only decreases the profitability of the project to its owner but also decreases the revenue received by the taxing authority. The method of calculation is identical to that of the earlier example. 

In recent years there has rightly been a marked increase in concern for the environment. The continual global population explosion together with the increase in purchasing power has led to a vast increase in the amount of pollution and rubbish. Because of their visibility and inability to degrade at a reasonable rate, plastics materials have been particularly criticised. 

Comparisons between Enropean stndies are also difficult. Tolley and Gyldmark (1993) reviewed costs of treatment, care, and support for HIV-positive and AIDS patients in eleven Enropean conntries, which were based on data from the second half of the eighties. The anthors inflated cost fignres to 1990 prices and converted them from local currency to US by using national healthcare-specific price indices and health-specific purchasing power parities. The standardized cost estimates ranged between US 1,700 (social care per HIV-positive) and US 28,200 (hospital care per AIDS person-year), with the exception of a Greek study, which produced an adjusted cost estimate for the hospital treatment and care of AIDS patients of US 70,400 per person-year. 

Costs converted to US doiiars (1996 vaiue) using the Heaith Purchasing Power Parity price index (OECD, 1999). 

CAUDLE, P. G. (1975) Chemistry Industry (Sept. 6th) 717 The comparative economics of self generated and purchased power. 

EP = excess power [kW] (difference of purchased power from base power) PRV = pressure-reducing valve... 

The system shown in Figure El 1.4 may be modeled as linear constraints and combined with a linear objective function. The objective is to minimize the operating cost of the system by choice of steam flow rates and power generated or purchased, subject to the demands and restrictions on the system. The following objective function is the cost to operate the system per hour, namely, the sum of steam produced HPS, purchased power required PP, and excess power EP ... 

There are a variety of reasons why cost-benefit analysis is so limited. It assumes certain judgments, such as the judgment that the existing distribution of purchasing power is... 

Differences in terms of per-capita income, per-capita emissions and energy intensity among countries remain significant (see Fig. 2.3). In 2004, UNFCCC Annex I countries held a 20% share in world population, produced 57% of world gross domestic product based on purchasing power parity (GDPppp), and accounted for 46% of global GHG emissions. 

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