## Economic Evaluation of Projects: A Guide |

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### Contents

INTRODUCTION TO THE ECONOMIC EVALUATION | 1 |

COMPONENTS OF CASH FLOW | 8 |

PROJECT CASH FLOW AND CRUDE ECONOMIC | 23 |

INTERPRETATION OF PROJECT NPV | 40 |

DISCOUNTED CASH FLOW RATE OF RETURN DCFR | 46 |

PROJECT SELECTION BY NPV AND DCFR | 56 |

CASE STUDY IN ECONOMIC EVALUATION | 65 |

OTHER EXAMPLES OF ECONOMIC EVALUATION | 86 |

UNCERTAINTY AND RISK IN ECONOMIC EVALUATION | 105 |

QUANTIFYING UNCERTAINTY AND ITS IMPLICATIONS | 116 |

DECISION TREES | 126 |

ECONOMIC RISK ANALYSIS IN ECONOMIC | 132 |

SYSTEMATIC PROCEDURE FOR MAKING PROJECT | 151 |

CONCLUDING COMMENTS ON THE ECONOMIC | 160 |

2 DISCOUNTED CASH FLOW CALCULATIONS | 173 |

INTERACTIVE DISCOUNTING PROGRAMS | 185 |

### Common terms and phrases

after-tax alphathon selling price alternative actions annual discount rate Annual plant breakeven build plant calculated capital allowances cash flow curve cash inflow cash outflows cell chance event company's competition corresponding cost of capital cumulative cash flow cumulative NPV decision point decision tree discount factor discounted cash flow economic evaluation economic risk analysis economically viable effect Enter cash flow example expected fixed costs forecasts and estimates heat recovery histograms income initial investment investment decision macro commands Monte Carlo simulation negative net present value nominal money units NPV distribution NPV Index NPV profile operating cash flow payback plant alternative plant investment plant NPV present value product sector project cash flows project DCFR project net cash project NPV proposal random numbers range raw material costs resulting scrap value selected sensitivity analysis situation sodium hydroxide stochastic subjective probability distributions taxable profit uncertainty variable costs yearly cash flows zero