Total capital employed

Because the calculation of the NPVs takes into account the ways in which the relevant sums of money have been invested or recovered, as well as their size, the IRR is characteristic of the project and its cash flows the IRR is the rate of return achieved by investing the total capital employed in the project in the same pattern as in building the project, to produce income in the pattern of the net cash flows of the project. 

The basic steps of a DCF appraisal are shown in Table 4, which describes a project whose total capital employment is 124 million, spent as shown over a 3-year construction period (including expenditure at year 0, i.e. the point of start-up). Revenues rise during the first 2 years of operation to a maximum figure from year 3 onwards. 

The scope of the capital investment required for the transition to a currently non-existent fuel technology is truly staggering. Capital cost for fuels infrastructure alone will approach or exceed 1 trillion. For comparison, this total is 13 times the total capital employed by ExxonMobil Corporation— the largest corporation in the petrochemical industry. It is equivalent to the total annual capital investment in the U.S. economy, or to the expected real growth in capital investment over the next 30-40 years. Other priorities of society, besides climate change, require capital investment as well. 

Obviously, the net annual profit must be clearly defined before comparisons are made with other companies. Similarly the term investment in Eq. (9-128) can have a variety of meanings. The two most common ones (used when assessing the profitability of companies as opposed to projects) are total assets and owners equity or capital employed. In the first case, Eq. (9-128) can be written as... 

Contractor s fees, if a contractor is employed his fees (profit) would be added to the total capital cost and would range from 5 per cent to 10 per cent of the direct costs. 

Inventory indicators are of key interest for planners. Higher inventory on the one hand ensures delivery capability and hedges the risk of volatile procurement prices on the other hand, high inventories increase the capital employed and the capital costs. While transportation quantities are a result of distribution balances, inventory quantities can vary between minimum and maximum bandwidth boundaries. The relative inventory level IL1 measures the percentage of the total inventory ending quantity compared to the total absolute maximum bandwidth inventory. 

Using the formula C, + Vt + S], values can be calculated for each department. In Department 1, for example, the total value of output is 120 in Department 2, the total value is 60. In our previous analysis of Marx s reproduction schema, based on the second volume of Capital, it was assumed that these values are also the total prices of each department. However, in the third volume Marx focuses on the organic composition of capital, which measures the ratio (Ct/Vt) between constant and variable capital.2 These ratios vary between 4 and 0.4 in this example. And it is this variation that leads Marx to argue that values cannot be sustained as indicators of price for each department of production. The problem is that the rate of profit (.SVC, + V) for each department is calculated as a ratio between total surplus value and total capital. Yet, for each department its own mass of surplus value is calculated from the variable capital employed. 

Interest is charged on the total capital investment at a set interest rate. Rates equivalent to those charged for bank loans or bonds are usually employed. Under these conditions, the total profit represents the increase over the return that would be obtained if the company could invest the same amount of money in an outside loan at the given interest rate. 

Very low capital and operating cost The separation could be made more economical by using a hybrid membrane process, i.e., a combination of distillation and pervaporation processes. Thus, a part of the total separation employs distillation where it is economical. PV replaces the subsequent separation where distillation becomes expensive. The overall operating cost of such a hybrid process is much lower than that of distillation alone. 

In the United Kingdom, the government controls the cost of pharmaceuticals not by limiting individual product prices, but by setting a cap on the profit that individual pharmaceutical companies can enjoy from their business with the National Health Service. Each company negotiates with the Secretariat of Pharmaceutical Price Regulation Scheme (PPRS) a total rate of return on the capital employed in generating its sales to the British National Health Service (NHS). 

All pharmaceutical companies with NHS brand-name drug sales over 500,000 are included in the Scheme, but only firms with sales over 4 million must submit financial records for a yearly assessment of their allowable profit rates (44). These 65 or so companies provide audited annual financial reports that document their total sales to the NHS including expenses for manufacturing, distribution, promotion, and R D associated with those sales, and the capital employed in generating the NHS sales. At most, 9 percent of a company s total NHS sales may be claimed for promotional expenses, but an additional allowance is made for informational activities (386). The PPRS attempts to pay for its share of R D by allowing firms to apply their worldwide ratio of R D... 

After the individual cost factors have been estimated, a rough cost effectiveness calculation is possible [Solinas 1997]. This should provide information on the return on investment (= ratio of profit to capital employed) for the planned project. Investment in the process under consideration will be profitable if the sum of the revenues exceeds the total outlay and the profit (revenue-outlay) makes it possible to amortize and pay reasonable interest on the capital invested. The return on investment provided by a process can be increased by minimizing the production costs. Exposing the main cost factors (raw material, energy, waste disposal, personnel costs, depreciation) will therefore indicate the direction the development should take in order to improve the process (Table 6.2-1). 

Capital employed Total investment lied up in the business comprising shareholders funds. With the double entry systan of accounting, shareholders funds, or capital, will always equal the total of all the assets less aU the liabilities. 

The capital cost can be determined through the weighted average method (Eq. (7.43)). In this expression, Xt denotes the proportion of equity over the total capital investment. To compute the expected return on equity, which is denoted by E ROE), Eq. (7.44) is employed. 

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