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How to do Projects Economic Evaluation – Example on How to Calculate DCFRR

In this post, I want to share how to do projects economic evaluation by using example. In this example, we will learn relationship between investment, sales, raw material cost, operating cost, to get the following parameters that usually used in projects economic evaluation:

  • Net cash flow
  • Cumulative cash flow
  • Discounted cash flow

Example on How to do Projects Economic Evaluation

It is proposed to build a plant to produce a new product. The estimated investment required is 12.5 million dollars and the timing of the investment will be:

  • Year 1    1.0 million (design costs)
  • Year 2    5.0 million (construction costs)
  • Year 3    5.0 million (construction costs)
  • Year 4    1.5 million (working capital)

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How To Do Projects Economic Evaluation

In this post, I want to share how to do projects economic evaluation. In my experience, doing project economic evaluation is not always daily activities of process engineers. However, when I involved in feasibility study project, we need to do projects economic evaluation. Also in my own experiences, as process engineers focused on creating several alternatives of process configuration, our team from industrial engineers did the projects economic evaluation. However, it will not hurt to understand general idea of project economic evaluations 😊

Since investing in chemical plants is done to make money, a system for evaluating project economic is required. For small projects, the decision-making process can typically be simplified by comparing the capital and operating expenses of various processing methods and pieces of equipment. When choosing between large, complicated projects, especially when the projects differ significantly in scope, time frame, and product type, more advanced evaluation procedures and economic factors are required. In this part, some of the more popular methods of economic analysis and the standards by which economic performance is evaluated are described. Read More