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Re: Financial Analysis
Standard financial accounting methods are as follows:
1. set the project time frame equivalent to the expected life of the
project (i.e. if the equipment is expected to work for 20 years, the time
frame would be 20 years)
2. The discount rate is very much firm specific. A 12 percent nominal
discount rate is more common.
Make sure to run sensativity analysis when running your NPV. Varry key
assumptions such as the discount rate, expected project line, cash flow
changes, or salvage value. For example, run the calculation with the
discount rate at a (optimistic) 10% and (pessimistic) 14%. The sensativity
analysis should show you which assumptions drive profitability and should
give you a better gut feel for the outcome than a single Net Present Value.
The sensitivity analysis might also point to key assumptions/estimates
that warrant refinning to take some of the uncertainty out of the project.
For a good reference, see:
Principles of Corporate Finance
Brealey and Myers
At 09:09 AM 2/23/99 -0600, you wrote:
>Dear P2 Techers,
>I have an odd question that may or may not be able to be answered on this
>Are there EPA or Federal guidelines for a financial analysis reviewing
>technologies? What is the required time frame for the analysis and what
>discount rate to be used?
>I seem to remember a 20 year time frame and ?8% discount rate. If possible,
>please site documentation.
>If I need to supply additional information, please contact me in private at
>Thank you in advance,
>Sigma Environmental Services, Inc.
>Oak Creek Wisconsin
47R Englewood Road
Gloucester, MA 01930