Cost Analysis Flashcards

1
Q

Simple bay back period

A

Investment / savings

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2
Q

ROR

A

rate of return

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3
Q

Rate of return

A

1 / PBP

annual return on investment

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4
Q

Strength of PBP and ROR

A
  • results are independent on (assumptions of) time value of money
  • works well for short term
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5
Q

Problems of PBP and ROR

A
  • often companies want a PBP of <2 years, which is a ROR of 50%. This happens rarely, and is therefore not rational decision making
  • they do not take lifetime into consideration
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6
Q

effect of lifetime (and PBP)

A
  • if lifetime is shorter then PBP, the investment is a loss

- if lifemtime is 1 year longer then PBP, you only have 1 year of revenue

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7
Q

NPV

A

net present value

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8
Q

net present value

A
  • I + (B-C)/a
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9
Q

annuity rate

A

r/ (1-(1+r)^-L)

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10
Q

discrount rate

A

r
expected rate of return from an alternative investment
(investment being - interest from a bank - stock market appreciation - expected profit from one’s own company)

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11
Q

A high discount rate

A
  • reflects believe that a large profit can be made from another project
  • works against projects with high initial investment
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12
Q

Private perspective (r)

A

a high discount rate > 10%

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13
Q

Negative NPV private perspective

A

may point the need for government intervention to regulate or subsidise

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14
Q

Postive NPV private perspective

A

does not mean that user will invest. Barriers are PBP, acces to capital, lack of information.

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15
Q

Social perspective (r)

A

modest discount rate 2-6%

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16
Q

Social perspective NPV

A
  • results may be used for setting policy priorities

- taxes are not taken into account in cost calcuations

17
Q

Irr = … for … is …

A

IRR = 0 for NPV = r

18
Q

ΔNPV indicates

A

that one project is better then the other

19
Q

marginal costs

A

costs of next unit of CO2

20
Q

Specific costs

A

Costs of technology per unit of CO2

21
Q

formula for specific (or marginal) costs

A

(a * ΔI + ΔC-ΔB)/ ΔCO2

22
Q

cost of electricity

A

(a + I + O&M + fuel cost) / electricity production

23
Q

real discount rate

A

r real = (r actual - r inflation)/(1 + r inflation)

24
Q

Real $ values should always be expressed as

A

$ for specific year

25
increase of nominal energy price
price year x = price year x-n * (1 + y) ^n with n the amount of years and y the increase
26
Progress ratio
for every doubling of production, the production costs will decrease by factor X
27
Progress ratio can be about
cost technology (learning rates give no guarentees for future)
28
Formulas for calculating Progress ratio
Cp = C1 · P^b -Cp = costs per unit after the cumulative production of P units -C1 = cost of the first unit -b = the experience index (generally < 1) AND C2p= C1·(2P)^b -C2p= costs per unit after the cumulative production of 2P units
29
The progress ratio can be calculated by
C2p / Cp
30
Learning rate
1 - pr
31
PR
progress ratio
32
A progress ratio of 80% means
cost will decrease with 20%
33
Learning by (4)
- doing - searching - using - interacting
34
learning by doing (4)
- Labor efficiency - Standardization (incl. mass production) - Specialization - methods improvements / improved use of equipment
35
Learning by searching
Changes in the resource mix / Product redesign
36
Learning by using
Product redesign based on experience users
37
Learning by interacting
Shared experience effects
38
If there is a constant PR
eventually costs will stabilize
39
Progress ratio =
= 2b = C2p/Cp