Economic Aspects In Process Design Flashcards
Explain fixed input
The amount of money or other input resources (like labour, materials or equipment) are fixed. The objective is to effectively utilise them
Explain fixed output
A fixed task to be accomplished
Into what four categories may a projects cash flow be classified
- Beginning of project can flows
- Annual operating cash flows
- Taxation
- End of project cash flows
Define NPV
Net Present Value - the value in the present of a project, in contrast to some future value it will have when it has been invested at compound interest
Define the decision criteria for NPV calculations
If NPV is greater than R0, accept the project
If NPV is less than R0, reject the project
Define ROR
Rate Of Return - the ratio of annual profit to investment
Define IRR
Internal Rate of Return - the discount rate that equates the present value of cash inflows with the initial investment associated with the project
Define the decision criteria for IRR calculations
If IRR is greater than the cost of capital, accept the project
If IRR is less than the cost of capital, reject the project
Define payback period
The time required after the start of the project to pay off the initial investment from income
What are the decision criteria for payback periods
If PBP is greater than the maximum acceptable payback period, reject the project
If NPV is less than the maximum acceptable payback period, accept the project
What factors must be considered when evaluating projects when using Payback, NPv and IRR as investment evaluation tools
- Economic performance
- Safety
- Environmental problems
- Political considerations
- Location of customers
- Availability of labour
- Availability of support services
- Company experience in the particular technology
Define depreciation
A decrease in value with age
What factors cause depreciation
Physical deterioration
Technological advances
Economic changes
Other factors
What is the service life
The time span in which the asset is economically feasible
What is the salvage value
The amount of money that can be obtained from the sale of the asset after all expenses are deducted
