Revenue Calculation and Net Cash Flow

With the capital needs calculated, it is now necessary to determine what profit (if any) the plant will make. It is assumed that the project is to be implemented as a result of some sound market research that might have shown an appropriate need in the marketplace. This research might also have shown what the plant capacity should be, and should have given guidance as to the likely sales price for the product - although this will normally be a management decision based upon the market entry strategy. An established product will probably have to go in at a discount on the present market price while a new product may be able to be priced on a cost-plus-reasonable-profit basis. 

the production rate and sales price, the total revenue for the project can be calculated (perhaps with allowance made for under-running in the first year or two as the faults are dealt with). It will cost money to get the product to market a sales force, advertising, cost of shipment and distribution, and so on. There may also be a royalty on sales payable to the owner of the technology used in the plant. These costs, generally called selling costs, are subtracted from the revenues to derive the sum that actually gets back to the project - the factory netback . 

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