most private individuals, companies borrow money, on which of course they have
to pay interest. In addition to the cost of construction, the company must keep in
hand some capital by which it can buy feedstock and chemicals and pay the salary
of its staff during the commissioning of the plant. This working capital must also be
considered as debt at the project initiation.
At the end of construction and commissioning, the cash flow into the system
moves upward toward a positive value and, after a prescribed number of years,
moves into a positive value. During this period of positive cash flow, the money
recovered from the operation must be sufficient to:
• Repay the loan and its interest.
• Pay all associated taxes.
• Pay all the operating costs of the project.
• Make an acceptable profit.
When these conditions have been met over the prescribed period of time called
the “earning life” or “economic life,” there still remains the plant hardware, the
land, and the working capital. These are considered as the project’s terminal
investment and are added to the final project’s net cost recovery.
The cash flow calculation recognizes the financial milestones shown in Fig. 9,
and the contents of a typical cash flow calculation are discussed below.
Economic Life of the Project
This is the number of years over which the project is expected to yield the projected
profit and pay for its installation. These are the number of years starting at year
0 which indicates the end of construction and the commissioning of the facilities.
The last year (usually year 10) is the year in which all loans and other project costs
are repaid and the “terminal investment” released.
Construction Period
This is the period before year 0 during which the plant is constructed and commissioned. Assuming that this period is 3 years, then these are designated as end of year
À2, À1, 0. During this period, the construction company will receive incremental
payments of the total capital cost of the plant with final payment at the end of year
0. The construction cost may be paid from the company’s equity alone, or from
equity and an agreed loan, or entirely from a loan. In the case of a loan to satisfy this
debt, the payment of the loan interest commences in this period. The interest
payment over this period however is usually capitalized and paid over the economic
life of the project.
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D.S.J. Jones and P.R. Pujado ´
to pay interest. In addition to the cost of construction, the company must keep in
hand some capital by which it can buy feedstock and chemicals and pay the salary
of its staff during the commissioning of the plant. This working capital must also be
considered as debt at the project initiation.
At the end of construction and commissioning, the cash flow into the system
moves upward toward a positive value and, after a prescribed number of years,
moves into a positive value. During this period of positive cash flow, the money
recovered from the operation must be sufficient to:
• Repay the loan and its interest.
• Pay all associated taxes.
• Pay all the operating costs of the project.
• Make an acceptable profit.
When these conditions have been met over the prescribed period of time called
the “earning life” or “economic life,” there still remains the plant hardware, the
land, and the working capital. These are considered as the project’s terminal
investment and are added to the final project’s net cost recovery.
The cash flow calculation recognizes the financial milestones shown in Fig. 9,
and the contents of a typical cash flow calculation are discussed below.
Economic Life of the Project
This is the number of years over which the project is expected to yield the projected
profit and pay for its installation. These are the number of years starting at year
0 which indicates the end of construction and the commissioning of the facilities.
The last year (usually year 10) is the year in which all loans and other project costs
are repaid and the “terminal investment” released.
Construction Period
This is the period before year 0 during which the plant is constructed and commissioned. Assuming that this period is 3 years, then these are designated as end of year
À2, À1, 0. During this period, the construction company will receive incremental
payments of the total capital cost of the plant with final payment at the end of year
0. The construction cost may be paid from the company’s equity alone, or from
equity and an agreed loan, or entirely from a loan. In the case of a loan to satisfy this
debt, the payment of the loan interest commences in this period. The interest
payment over this period however is usually capitalized and paid over the economic
life of the project.
730
D.S.J. Jones and P.R. Pujado ´