Repayment

There can be an element of maintenance costs that is fixed and an element which is variable. Fixed maintenance costs cover routine maintenance such as regular maintenance on safety valves which must be carried out irrespective of the rate of production. There also can be an element of maintenance costs which is variable. This arises from the fact that certain items of equipment can need more maintenance as the production rate increases. Also, royalties which cover the cost of purchasing another company s process technology may have different bases. Royalties may be a variable cost, since they can sometimes be paid in proportion to the rate of production. Alternatively, the royalty might be a single-sum payment at the beginning of the project. In this case, the single-sum payment will become part of the project s capital investment. As such, it will be included in the annual capital repayment, and this becomes part of the fixed cost. 

From an overall economic viewpoint, any investment proposal may be considered as an activity which initially absorbs funds and later generates money. The funds may be raised from loan capital or from shareholders capital, and the net (after tax and costs) money generated may be used to repay interest on loans and loan capital, with the balance being due to the shareholders. The shareholders profit can either be paid out as dividends, or reinvested in the company to fund the existing venture or new ventures. The following diagram indicates the overall flow of funds for a proposed project. The detailed cash movements are contained within the box labelled the project . 

The oil company s after-tax share of the profit is then available for repayment of interest on loans, distribution to the shareholders as dividends, or reinvestment on behalf of the shareholders in this or other projects. 

A (DCFRR) of, say, 15 percent imphes that 15 percent per year will be earned on the investment, in addition to which the project generates sufficient money to repay the original investment plus any interest payable on borrowed capital plus all taxes and expenses. 

As for the contribution efficiency T[, it is the ratio of (1) the annual profit that can actually be achieved in a given year for a given sales volume to (2) the profit that could be obtained if no repayment of capital or interest were required and all fixed-expense items were credited free to the project. It is defined by... 

Therefore, requests for early repayment by more than 40 percent of the debtors could be met. Hence, no hquidity problems are likely to arise, and advantage can be taken of discounts for early payment. Also, the current debt could be met by sale of the inventoiy, which takes (0.140 As/As)(365), or 51 days. The quick ratio is 172.45 = 0.407. 

A positive value of any term in Eq. (9-177) implies an increase in working capital, and a negative value a decrease. For example, the sale of fixed assets such as plant, buildings, land, etc., is a source of cash, and the purchase of fixed assets uses up cash. Similarly, an increase in financial resources in the form of loans and stock and bond issues is a source of cash, and a decrease in financial resources in the form of repayment of loans, retirement of stocks and bonds, and the payment of cash dividends uses up cash. (Note that a stock dividend as opposed to a cash dividend does not use up cash.)... 

Alternatively, the debt repayment can be scheduled with uniform principal payments and varying total payments each period. The principal payment can be calculated by the formula ... 

Banks are not in business to take risks. They rent money and do everything they can to insure the return of their principal as well as the interest. Elaborate rating systems have been developed to measure each company s ability to repay its loans. One criterion is the debt to equity ratio. The higher the debt the more risk in a loan, and the higher the interest rate. 

The capital charge factor (/3) multiplied by the capital cost of the plant (Co) gives the cost of servicing the total capital required. Suppose the capital costs of a plant at the beginning of the first year is Co and the plant has a life of N years so an annual amount must be provided which is (Co/ + B). The first term (CoO is the simple interest payment and the second (B) matures into the capital repayment after N years (i.e. interest added to the accumulated sum at the end of each year), thus... 

The time required to repay all capital and operating costs by earnings. 

Unfortunately, no data are extant on any other physical property of vinylidene compounds, such as infrared spectra. This area is again one which would repay investigation. 

Other examples in the Gottheb and Kubitzki (1983) paper, following similar statistical methodology and logic, concern chemical changes in the evolution of Aniba (Lauraceae) in the Amazon, and associated river basins and relationships among genera of Papilionoideae as a function of their accumulated alkaloids. These are complex examples that would repay careful study by interested readers. 

It is essential to collect sales figures and the associated costs by the day/week/month, and to separate the figures for the different products. It is also essential to distinguish between fixed and variable costs. As we have seen (Chapter 8), the latter include costs such as field preparation, seed, harvesting and packaging. Fixed, or overhead, costs include loan repayments, property taxes, insurance, depreciation and maintenance on buildings and equipment. It is important to include the farmer s salary as a fixed cost, as well as marketing costs, deliveries, fuel, and vehicle upkeep. 

The present value of an annuity that has been established to repay a loan is the amount of money borrowed. From the previous discussion... 

Market is forecast on a 10% increase per year in free world air traffic between 1970 and 1990. The projection was that 540 SSTs will be-needed by 1990. Repayment Government will recover all money appropriated plus 1.2 billion dollars... 

Jan loaned Ralph 45 expecting him to repay 50 in one month. What is the amount of annual simple interest on this loan (R = the annual rate of simple interest. Interest = Principal x Rate x Time, or I = PRT.)... 

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