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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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