技术经济学英文版演示文稿C31.ppt
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1、CHAPTER 3 METHODS FOR ECONOMIC ANALYSIS 3.1 Methods Without Time Value of Money 3.2 Present Value Analysis 3.3 Annual Value Analysis 3.4 Rate of Return Analysis 3.5 Growth Rate of Return Analysis 3.6 Profit to Investment Ratio 3.7 Minimum Rate of Return,经济评价原理:利润最大化原理 = B C BBenefit, CEconomic Costs
2、 C:投入各种要素的机会成本,包括企业家的正常利润。 超额利润。 计算 的公式如下:,项目不仅能达到正常利润水平,且有超额利润。 项目仅能达到正常利润水平。 项目不能达到正常利润水平(但并不意味着亏损),项目不仅能达到正常利润水平,且有超额利润。 项目仅能达到正常利润水平。 项目不能达到正常利润水平(但并不意味着亏损),项目不仅能达到正常利润水平,且有超额利润。 项目仅能达到正常利润水平。 项目不能达到正常利润水平(但并不意味着亏损),= B / C,= B - C,= (B C)/C,= B - C,= B / C,= (B C)/C,3. METHODS FOR ECONOMIC ANAL
3、YSIS In this Chapter, we will discuss various methods used for evaluating economic feasibility of projects. The foundation for these methods was laid in the previous Chapter when we discussed the importance of time value of money and its impact on the cash flow. In this Chapter, we will formalize th
4、ose concepts through various methods and illustrate the applications of these methods by numerous examples.,In evaluating projects we will restrict our attention to projects involving mutually exclusive alternatives only. In simple terms, mutually exclusive alternatives are exclusive of each other.
5、By selecting one alternative, we will automatically eliminate the other alternatives. A simple example would be buying a computer for personal use. If one is interested in buying only one computer for personal use, selection of any one computer from an array of alternatives will automatically elimin
6、ate all the other alternatives. For example, if one decides to use an IBM-compatible PC, then another alternative, Apple computer, would be automatically eliminated.,In the petroleum industry, in several instances one will deal with projects where only one alternative will have to be selected after
7、evaluating several alternatives. Some examples are: * Selection of a contractor to conduct 3-D seismic survey for an exploration venture. * Selection of a drilling contractor to drill a well. * Selection of a service company to conduct log surveys. * Selection of a pumping unit to improve the produc
8、tion. * Evaluation of an in-fill drilling option to increase the production. * Selection of a compressor to increase the gas production.,In all the above projects, we can select only one of the several alternatives being considered. Once a particular alternative is selected, all the other alternativ
9、es are automatically eliminated from further consideration.,Throughout this Chapter, we will use a minimum rate of return (MROR) to evaluate the attractiveness of various alternatives. The choice of MROR is very critical in evaluating the alternatives. In simple terms, the MROR is the minimum rate r
10、equired by a corporation or an individual to make the project attractive.,For example, if one borrows the money from a bank at an interest rate of 10% per year to invest in a drilling venture, the MROR is 10%. This is because, if the project does not yield at least 10% of return on the investment, t
11、he person will be a net loser. If the project earns 15% return, then after paying 10% interest to the bank, the person can make some money for himself or herself. If the project only earns 5% return, the person will have to pay from his or her own pocket to cover the interest payment to the bank. If
12、 the project earns 10% then there is no net gain or loss. Therefore, 10% becomes the minimum acceptable rate.,MROR is sometimes also called as the cost of capital. The computation of the cost of capital for the corporation is much more complex than the above example because of the varied sources of
13、capital. We will delay the discussion on this subject until a later section of this Chapter. It is suffice to state that any alternative which does not satisfy the minimum rate of return (MROR) criteria will be automatically rejected. Ideally, when evaluating mutually exclusive alternatives, we woul
14、d like to have the economic criterion to possess the following characteristics:,* It should be suitable for ranking various alternatives. * It should reflect the cost of the capital. * It should incorporate uncertainties in our assumptions. * It should reflect goals and objectives of the corporation
15、. In practice, no single criterion would be able to satisfy these characteristics. Especially, although techniques are available to quantify the uncertainties in economic evaluation, for simplicity, we will assume that all the information regarding any given alternative is known with certainty. Rega
16、rding the last ideal characteristic of a criterion, we will assume that our goal will always be either to minimize cost or to maximize profit or benefit. We will not consider other objectives in our analysis.,Several economic criteria are available to evaluate mutually exclusive alternatives; each c
17、riterion having certain advantages and disadvantages. we will discuss techniques which do not account for time value of money. present the present value (PV) analysis. the annual value (AV) analysis. rate of return method (ROR), growth rate of return method (GROR), the profit to investment ratio met
18、hod (PIR). (MROR) In the last section, (MROR).,3.1 Methods Without Time Value of Money The methods used without accounting for time value of money are simple to use. These methods do not require significant number of calculations. Although used extensively in the absence of calculators and computers
19、, even by big corporations, at present, these methods, at best, provide a rule of thumb solution to a problem. In the alternative, these methods may be considered as primary screening tools to evaluate the alternatives. In the following, we discuss some of these methods and explain the relative adva
20、ntages and disadvantages of these methods.,3.1.1 Return on Investment (ROI) This is one of the most commonly used methods in the oil industry. It is a ratio of total income during the life of the project divided by the total investment during the same period. In mathematical form, we can write, As a
21、 rule of thumb, a value of ROI greater than 2 is considered a good investment. Since the method ignores the time value of money, it should only be used in conjunction with other methods which account for the time value of money.,Example 3.1 The following cash flow profile is given for an exploration
22、 project. Calculate the return on investment (ROI) for the project. Year 0 1 2 3 4 5 6 7 8 Cash Flow -20 -30 30 50 60 40 40 30 20 (1000s of dollars) Solution total cumulative income=30 + 50+ 60 + 40 + 40 + 30+ 20 = 270 total investment = -50 Using Eq. 3.l, Using rule of thumb, since 5.42.0, it is a
23、good investment.,Another method, which is also used, is called profit to investment ratio and is defined as, In other words, by simply subtracting one from the ROI, we can calculate the PIR. As a rule of thumb, it is preferred that PIR be greater than 1.0. Eq. 3.2 is slightly different than the PIR
24、method we discuss in Section 3.6. In Section 3.6, we expand this definition to include the effect of time value of money.,Example 3.2 The following two alternative projects are considered for a potential investment. Using ROI or PIR as a criterion, which alternative will be selected? Year 0 1 2 3 4
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