CASH FLOW ANALYSIS

1. CASH FLOW ANALYSIS PROFITABILITY

2. GENERAL CASH FLOW APPROACH • CASH FLOW ANALYSIS PROVIDES A RIGOROUS METHOD TO COMPARE PROFITABILITY • USES THE SAME COMPONENTS AS ROI CALCULATIONS • ALLOWS FOR THE TIME VALUE OF MONEY AND ALSO FOR CHANGES IN COMPONENTS OVER TIME

3. CASH FLOW COMPONENTS • INVESTED CAPITAL COMPONENTS • FIXED CAPITAL • WORKING CAPITAL • SALVAGE – ($0 FOR OUR ANALYSIS) • CAN INCLUDE LAND, BUT THIS IS TREATED LIKE WORKING CAPITAL - NOT INCLUDED IN OUR ANALYSIS • CAN INCLUDE PLANT AND CORPORATE COMPONENTS, BUT THESE DEPEND ON EACH ORGANIZATION - NOT INCLUDED FOR OUR ANALYSIS.

4. CASH FLOW COMPONENTS • REVENUE COMPONENTS • REVENUES ARE BASED ON PRICE AND PRODUCTION RATE • THESE CAN CHANGE OVER TIME AND WITH TOTAL PRODUCTION RATE • ASSUME PRODUCTION AT DESIGN RATE AND A CONSTANT PRICE FOR THE PRODUCT OVER THE PLANT LIFE, FOR THIS PROJECT.

5. COM COMPONENTS • VARIABLE COMPONENTS • RAW MATERIALS • UTILITIES • FIXED COMPONENTS • INSURANCE • PROPERTY TAXES • ALLOCATED COMPONENTS • LABOR • MAINTENANCE • LABORATORY • DEPRECIATION • BASED ON A DEFINED SCHEDULE • ADDED BACK IN AS A POSITIVE CASH FLOW

6. CASH FLOW CURVE - CONSTANT $

7. DISCOUNTED CASH FLOW (DCRR) • ALSO CALLED • INTERNAL RATE OF RETURN (IRR) • OR NET PRESENT WORTH (NPW) • METHOD HAS BECOME A STANDARD FOR MANY COMPANIES. • CAN BE DEFINED AS THE MAXIMUM INTEREST RATE AT WHICH FUNDS COULD BE REPAID FOR A 100% DEBT PROJECT WITH A TERM OVER THE LIFE OF THE PROJECT • BASED ON DISCRETE OR CONTINUOUS CASH FLOWS, THOUGH NORMALLY CONTINUOUS ARE TREATED AS EQUIVALENT ANNUAL DISCRETE VALUES.

8. CALCULATION METHODOLOGY • CALCULATE CASH FLOWS BASED ON CONSTANT $ AMOUNTS • DETERMINE THE DISCOUNT RATE THAT WILL CONVERT THE CUMULATIVE SUM OF ANNUAL CASH FLOWS TO A $0 VALUE OVER THE LIFE OF THE PROJECT • THE HIGHER THE DISCOUNT RATE, THE MORE PROFITABLE THE PROJECT.

9. DCRR CASH FLOW CURVE

10. DCRR EXAMPLE • ASSUME PROJECT CASHFLOW

11. GRAPHICAL RESULTS

12. PRIUS EVALUATION

13. PRIUS NPV