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Finance for Engineers Evaluation and Funding of Capital Projects

:	Frank Crundwell
:	Finance for Engineers Evaluation and Funding of Capital Projects
:	Springer-Verlag
:	9781848000339
:	1
:	CHF 84.40
:

:	Allgemeines, Lexika
:	English

:	622
:	Wasserzeichen/DRM
:	PC/MAC/eReader/Tablet
:	PDF

With flair and an originality of approach, Crundwell brings his considerable experience to bear on this crucial topic. Uniquely, this book discusses the technical and financial aspects of decision-making in engineering and demonstrates these through case studies. It's a hugely important matter as, of course, engineering solutions and financial decisions are intimately tied together. The best engineers combine the technical and financial cases in determining new solutions to opportunities, challenges and problems. To get your project approved, no matter the size of it, the financial case must be clear and compelling. This book provides a framework for engineers and scientists to undertake financial evaluations and assessments of engineering or production projects.

Dr Frank Crundwell BSc (Financial Maths), PhD (Chem. Eng.), has experience in academia (University of California, Berkeley; University of Cape Town; University of the Witwatersrand, Johannesburg), in technology development (BHP Billington) and corporate venture capital, and currently runs his own company (CM Solutions). He has been in involved in due diligence work, he has developed the business case for investment decisions, and he has patented and licensed inventions. He has also presented courses on Real Options Analysis and Finance for Professional Engineers for professionals.

	Preface	7
	Intended Readers	8
	Educational Package	8
	Acknowledgements	10
	Contents	11
	List of Abbreviations	23
	Part I Foundations	24
	An Overview of the Evaluation and Financing of Capital Projects	26
	1.1 Evaluation and Funding of Projects	26
	1.2 Project Financials	27
	1.3 Evaluating the Project Based on Free Cash Flow	31
	1.4 Profit (or Earnings) is Not Required for the Assessment of the Project	34
	1.5 Investment Decision Precedes the Financing Decision	34
	1.6 Past Expenses are Excluded from the Project Financials	35
	1.7 Assessment of the Risk of the Project	35
	1.8 Financing of a Capital Project	36
	1.9 Summary	37
	1.10 Looking Ahead	39
	1.11 Review Questions	39
	1.12 Exercises	40
	The Theory and Practice of Decision- making Concerning Capital Projects	42
	2.1 Introduction	42
	2.2 Cost-benefit Analysis, Engineering Economics and Capital Budgeting	42
	2.3 Perspectives for the Assessment of Projects	45
	2.4 Enhancing Value for Investors	46
	2.5 Business Context	47
	2.6 Business Decision-making	52
	2.7 A Framework for Decision-making	54
	2.8 The Practice of Decision-making for Capital Projects	59
	2.9 Summary	65
	2.10 Looking Ahead	66
	2.11 Review Questions	66
	2.12 Exercises	67
	Financial Statements	68
	3.1 Introduction	68
	3.2 Business Process and the Dual Nature of Transactions	68
	3.3 Financial Records	72
	3.4 Accounting Principles and Conventions	72
	3.5 Financial Statements	75
	3.6 Depreciation	88
	3.7 The Interaction Between the Financial Statements	92
	3.8 Relationship Between the Financial Statements and the Project Cash Flows	94
	3.9 Case Study: Santa Anna Hydroelectric Power Scheme	95
	3.10 Examining the Business Risks	100
	3.11 Case Study: Apex Foods	101
	3.12 Ratio Analysis and Financial Trees	106
	3.13 Summary	109
	3.14 Review Questions	109
	3.15 Exercises	111
	Cash Flows for a Project	114
	4.1 Introduction	114
	4.2 Determining the Cash Flows for a Project	114
	4.3 Overview of the Stages of Engineering Design and Construction	115
	4.4 Approval Procedure	116
	4.5 Estimation of the Capital Costs	117
	4.6 Estimation Techniques for Capital Costs	124
	4.7 Estimation of the Total Operating Costs	129
	4.8 Forecasts of the Sales or Revenue	132
	4.9 Calculation of the Direct Taxes and Royalties	134
	4.10 Working Capital	136
	4.11 Case Study: Order of Magnitude Estimate of the Capital Cost of a Plant	138
	4.12 Case Study: Factored Estimate of the Capital Cost of a Plant	138
	4.13 Summary	139
	4.14 Looking Ahead	142
	4.15 Review Questions	143
	4.16 Exercises	143
	Part II Evaluation of Capital Projects	146
	Time Value of Money	148
	5.1 Introduction	148
	5.2 Interest and Interest Rates	149
	5.3 Effect of Timing on the Value of Money	149
	5.4 Future Value	151
	5.5 Multiple Periods	151
	5.6 Types of Interest Rates	153
	5.7 Compounding	155
	5.8 Discounting	169
	5.9 Compound Interest Formula	174
	5.10 Case Study: Zero Coupon and Coupon Bonds	178
	5.11 Summary	181
	5.12 Looking Ahead	182
	5.13 Review Questions	182
	5.14 Exercises	183
	Evaluation Criteria for Investment Decisions	186
	6.1 Creating Value for the Investor	186
	6.2 Non-discounted Cash Flow Techniques	187
	6.3 Discounted Cash Flow Techniques	191
	6.4 Comparison Between Discounted Cash Flow Techniques	211
	6.5 Case Study: Decision Criteria	218
	6.6 Survey of the Most Used Criteria	221
	6.7 Summary	222
	6.8 Looking Ahead	223
	6.9 Review Questions	223
	6.10 Exercises	224
	Mutually Exclusive, Replacement and Independent Projects	228
	7.1 Classification of Asset Allocation Decisions	228
	7.2 Mutually Exclusive Alternatives	229
	7.3 Replacement Studies: Mutually Exclusive Decisions with an Incumbent	240
	7.4 Non-mutually Exclusive or Independent Projects	249
	7.5 Summary	262
	7.6 Review Questions	263
	7.7 Exercises	264
	Practical Issues in the Evaluation of Projects	270
	8.1 Introduction	270
	8.2 Inflation and Price Escalation	270
	8.3 Taxation	276
	8.4 Choice of the Discount Rate	287
	8.5 Summary	290
	8.6 Review Questions	291
	8.7 Exercises	292
	Sensitivity, Scenario and Other Decision Analysis Techniques	296<