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We investigated the techno-economic analysis of two integrated torrefaction and pelletization systems: (1) Torrefaction befOre Pelletization and (2) Torrefaction After Pelletization configurations to produce torrefied wood pellets. The detailed mass and energy balances and operating parameters were obtained from the process simulation model developed with the base case plant capacity of 100,000 Mg yr−1 using natural gas as an auxiliary fuel source. A discounted cash flow analysis was conducted for both configurations to estimate the capital expenditure, operating expenses, production cost, and the minimum selling price of torrefied pellets. The minimum selling price of torrefied pellets at the plant gate was $207 Mg−1 ($8.5 GJ−1) for the Torrefaction before Pelletization and $197 Mg−1 ($8.1 GJ−1) for the Torrefaction After Pelletization configurations. An increase in the plant capacity of up to 200,000 Mg yr−1 for both configurations decreased the minimum selling price by 10%. The sensitivity analysis of various operational and financial parameters demonstrated that the feedstock cost and torrefaction product yield were the most sensitive parameters influencing the minimum selling price of torrefied pellets. Future opportunities exist to reduce the minimum selling price of torrefied pellets to become competitive to conventional wood pellets and coal.

The market for space solar power (SSP) is developing. This analysis utilizes a case study of SSP for remote mine operations to determine its economic feasibility. We employ a discounted cash flow (DCF) evaluation and then assess the sensitivity of the DCF model to changes in its underlying assumptions. The results indicate that there are scenarios for SSP where it is considered a viable power alternative. Further, a discussion of the assumed manufacturing and transportation costs decreases to expand the market is given.

In this research, a novel technology is proposed that combines chemical looping combustion and methane reforming in order to convert CO2 to value added chemicals. The stoichiometric number is improved via adding assisted steam and utilizing pressure swing adsorption unit. The process simulation is conducted utilizing Aspen plus-V10 simulation software. The new built-in model featured by AspenTech, dubbed Fluidbed, in Aspen Plus is employed to simulate the CLC section. In Aspen Plus flowsheet environment, a hierarchal approach is considered in that the main flowsheet is divided into 5 hierarchy models or sub flowsheets. The process simulation results display that the overall conversions of CH4 and CO2 via this process are 97 % and 87 %, respectively. The heat integration results depict that 138.7 MW heat energy can be saved in the process. The CO2 emission of the whole process per methanol production is 0.1 tCO2/tMe. The estimated capital expenditure, and operating expenditure are US$ 509 million and US$ 159 million/yr, respectively. A discounted cash flow model combined with sensitivity analyses showed that a breakeven point could be reached with a methanol price of US$ 242/tonne. Net present value, internal rate of return, and pay out time are evaluated based on DCF results.

A techno-economic analysis (TEA) was conducted to evaluate the economic profitability and feasibility for a H2 energy storage system using an alkaline and a polymer electrolyte membrane water electrolysis for 1 MW water electrolysis operation. Many economic analysis methods such as itemized cost estimation, profitability analysis using a cumulative cash flow diagram, and uncertainty analysis employing a Monte-Carlo simulation method were utilized to perform a TEA. In particular, a renewable energy certificate (REC) was considered as an additional benefit of a renewable energy use. From itemized cost estimation, respective levelized costs of H2 of 7.21 and 9.19 $ kgH2−1 were obtained for both H2 energy storage systems in an alkaline and a polymer electrolyte membrane water electrolysis by considering current economy situation and therefore it is still difficult to be cost-competitive compared to a commercial H2 production cost. From profitability and uncertainty analysis results, an appropriate REC weight was confirmed in terms of discounted profitability criteria like a discounted payback period, a net present value, a present value ratio, and a discounted cash flow rate of return. In addition, a REC weight was affected on a net present value compared to a REC trading cost fluctuation.

In recent years, On-orbit servicing (OOS) is in the ascendant, attracting attentions of a growing number of institutions and commercial space companies. The sustainable development of OOS is heavily relied on its economic benefits. However, the economic feasibility of OOS is not sufficiently analyzed in the existing studies. Based on this, a general economic value analysis framework for OOS is proposed in this paper. Firstly, the maximum price that clients would be willing to pay is obtained by real option method through comparing values of OOS by an alternative scheme. Secondly, the minimum price that the servicer could afford is predicted by Discounted Cash Flow (DCF) method, which is based on a service provider value model. Six necessary factors are considered in this model at the same time, including servicing architecture and its initial construction cost, mission related depreciation, income tax, operating expense, monetary value, as well as technical risks and the corresponding insurance premium. Then, the above two prices are compared to analyze the economic feasibility of OOS. Finally, mission cost, pricing strategies and OOS value drivers are modeled and discussed within the estimated acceptable price range. The results show that the OOS is commercially viable when the initial costs of geosynchronous communication satellites and the servicing architecture are more than $242 M and less than $140 M respectively. The applicability and usefulness of the proposed method are demonstrated by an actual business case analysis of the Mission Extension Vehicle-1 (MEV-1).

A large-scale hydrogen supply chain is an alternative for the transportation of energy generated from a renewable energy source. Utilizing this technology would drastically improve the generation of clean energy. Therefore, an analysis method to estimate the economic and environmental benefits of the introduction of a hydrogen supply chain using an existing pipeline is developed. The proposed method first estimates the energy and exergy flows in the system to calculate the overall efficiency of these quantities. Afterward, the payback period is estimated based on the overall energy efficiency using the discounted cash flow (DCF) method. The overall efficiency of the system, based on the energy analysis presented, would seem to be the final delivered electrical, fuel and useable heat energy delivered to end use divided by the input solar and wind energy. Furthermore, the environmental effects due to the introduction of the systems are evaluated considering the reduction of global warming and air pollution gases, such as CO2 and PM2.5. The proposed analysis method was applied considering a natural gas pipeline that connects Qinghai and Shanghai. As a result, conversion ratios of 24.9% for electricity and 17.5% for heat were achieved, with the overall efficiency of the system of 42.4% based on the electricity obtained from photovoltaics. 3.02 Gt of CO2, 104 kt of SOx, and 134 kt of NOx, which represent 3.3%, 0.5%, and 0.6% of the annual discharge in China, respectively, and 8.66 kt of PM2.5 would be reduced every year. Furthermore, a reduction of 953 Mt in coal consumption is expected. The payback period of the proposed system using the DCF method is 4.17 and 2.28 years for the two alternatives evaluated in this work. The cash flow of the DCF is influenced by installation cost and operation cost of equipment.

CO2 utilization via methanol synthesis can be an effective approach to mitigate the issue of global warming. This study developed an innovative process to produce methanol by combining water electrolysis with tri-reforming of methane (TRM). The proposed design utilized carbon-free electricity to split water into O2 and H2; O2 is collected for partial oxidation reaction in the TRM and H2 is collected for stoichiometric number (SN) optimization. This process configuration eliminates the typical problems of H2 surplus or deficit associated with methanol synthesis and allows a substantial amount of CO2 to be converted. The main process flowsheet was developed with Aspen HYSYS process simulator and then the feasibility of this project was evaluated based on its technical, environmental, and economic performances. The estimated capital expenditure (CAPEX), operating expenditure (OPEX) and GHG emissions of the baseline plant are US$774 million, US$263 million/yr. and −0.14 kgCO2eq/kgMeOH, respectively. In particular, water electrolysis process accounted for 34 % of CAPEX and 51 % of OPEX. A discounted cash flow (DCF) model combined with sensitivity analyses showed that a breakeven point could be reached with a methanol price of US$491/ton. The results demonstrated that combining water electrolysis with TRM could achieve a sustainable carbon-sink process for methanol production.

In practice, a cash payment is a classical payment term, a credit payment is commonly applied to stimulate sales, and an advance payment is used to avoid order cancellations. A combination of these three payment types is considered an advance-cash-credit (ACC) payment scheme, which is commonly used in business transactions. For instance, a home buyer must pay a homeowner 1% of the listing price as a good-faith deposit (i.e., an advance payment) to start negotiating the price, then pay 10% of the agreed-upon price (i.e., a cash payment) when signing the contract, and then has a delay before the final payment (i.e., a credit payment, a mortgage) is approved. In this paper, we develop an economic production quantity (EPQ) model for perishable goods in a three-echelon supplier-manufacturer-customer chain: (1) demand rate depends on selling price and freshness of a perishable item (i.e., time to sell-by date), and (2) the supplier offers an upstream ACC payment to the manufacturer, while the manufacturer grants a downstream cash-credit payment to customers. Consequently, the manufacturer must determine optimal selling price, production run time, and replenishment cycle time to maximize the present value of total annual profit by using a discounted cash flow (DCF) analysis. The proposed model fits in a general framework that includes numerous previous models as special cases. The numerical results reveal that the present value of total profit is joint concave in both selling price and cycle time. Finally, a sensitivity analysis is performed and managerial insights are also provided.

In modern society, use of natural resources poses a great challenge. However, the circular economy paradigm has defined a new concept of waste, proposing it as a business opportunity. Of particular interest in this paradigm is ‘waste electrical and electronic equipment’ (WEEE), given its high growth rate, and ‘wasted printed circuit boards’ (WPCBs), which are the most valuable component of WEEE. Although WPCB recycling is currently dominated by large firms, the present work evaluates the economic feasibility of hydrometallurgical processes, as used within small and medium enterprises (SMEs). Discounted cash flow (DCF) is used as a reference methodology and net present value (NPV) is used as an economic performance index. The analysis is conducted on three categories of WPCBs (low-, medium- and high-grade) and 15 categories of e-waste. The results underline the key role played by the market price of Au and Pd, plus the purchase cost of WPCBs. Accordingly, sensitivity, scenario and risk analyses are conducted on these variables and a break-even point (BEP) analysis is used to define the exact values for which economic feasibility is verified. NPV is shown to vary from 6.8 million € for medium-grade WPCBs to 63.0 million € for high-grade WPCBs in a baseline scenario, with a negative (unprofitable) result (NPV of -2.8 million €) for low-grade WPCBs.

Recent fundamental work with discounted cash flow methods shows that an alternative metric for evaluating profitability and risk, one different from Internal Rate of Return (IRR) —namely the annualized and non-dimensionalized Net Present Value (NPV%)— can make evaluating project profitability easier yet more informative. It provides a simple and transparent strategy to optimize a design's key financial dependent variables (capital investment, profitability, risk). 1 Both traditional and exo-parametric modeling methods developed by the author are linked to this metric, providing an efficient and precise mechanism to organize and carry out the financial/optimization search procedures in process design. Design engineers want to know what is the optimum size of investment (TI) that meets projected market conditions? What is the expected long-term (NPV) return? What metric can be used to maximize them, consistent with the need to recover capital as quickly as reasonably possible (i.e., to bound the “short-term risk”)? The proposed approach answers all three questions simultaneously, with a precise min-max solution obtained transparently.

With increasing environmental concerns with respect to the petroleum-based adhesive production process, bio-based adhesive has been explored as a promising replacement. The purpose of this paper was to explore the economic feasibility of structural bio-adhesives made from glycerol, a byproduct of biodiesel production. SuperPro Designer software was employed to perform the techno-economic analysis. Several key parameters were analyzed, such as total capital investment, annual operating costs and revenues. It was found that the unit production cost of structural bio-adhesives ($2.45/kg) was compatible with that in the current market. Three different scenarios were built to investigate the worst-case scenario and the best-case scenario associated with this production process. Sensitivity analysis was also performed to evaluate the key parameters significantly influencing the economic result. In this study, material cost was determined to be the most significant factor throughout the production process. Discounted cash flow analysis was conducted to explore the influence of the time value of money. The minimum selling price obtained was $3.11/kg for this bioadhesive production process. Underlying issues and areas needed for improvement were also discussed in this study.

The reliability of power systems, in terms of uninterrupted electricity supplies, is dependent on the reliability of the system's elements, especially the generation sources and transmission lines. The reliability of a coal-fired power unit's operation is essentially affected by the unit's main components, i.e. the turbine, the boiler and the generator. According to the statistics, the boiler is the most failure-prone element of the power unit. Therefore, efforts aimed at improving the reliability must include actions that enable early diagnostics of the state of the individual devices. In this paper it has been proposed that the optimal time to perform diagnostic testing of boiler tubes should be determined using risk analysis. Using the net present value (NPV) discounted cash flow index and the avoided risk criterion, a procedure has been put forward that optimizes the time when diagnostic tests should be carried out. The method has been applied to optimize diagnostic testing of boiler tubes, where corrosion is the principal cause of damage. Methods have also been given to determine the probability of the failure of such elements.

This paper presents the results of a comparative economic analysis of residential solar photovoltaic systems throughout the provinces of Canada in 2013 and 2016. The study was conducted using the discounted cash flow method. Basic economic theory involving the concepts of net present value, payback period, and internal rate of return was used, based on data from 2013 and 2016. The solar photovoltaic market is dependent on supporting policies and incentives. Thus, the relevant federal and provincial supporting policies for building implementation are briefly described and considered in the calculations. Results are presented in the form of summary tables showing selected major cities, classified into different categories, in terms of financial viability. The results show that in 2013 there were 9 cities out of 13 for which the payback period was expected to be higher than 30 years but in 2016, only Montreal PV projects remain infeasible. Furthermore, sensitivity analyses were conducted to establish new values for the selling price of electricity, initial cost of the proposed project, and percentage of subsidy required to ensure project attractiveness, that is, a short payback period of only 5 years for residential buildings.

This article analyses the techno-commercial feasibility of 4G Long-Term Evolution (LTE) network deployment in India. The discounted cash flow approach that is used considers radio-technical parameters of the LTE network components, Bass model-based forecast of the subscription, and the coverage area matched to the service capacity using a cell-dimensioning approach, in order to estimate the overall investments and profitability for a given average revenue per user. To understand the profitability and the present value of investments for different demand scenarios, a modified internal rate of return, and net present value analyses are performed. Keywords: 4G, LTE, Digital India, Broadband adoption, Bass model, Techno-economic assessment, Discounted cash flow

One of the main challenges in valuing an option where the underlying is an infrequently traded ‘real’ asset, such as a mining project, is the complexity and potential bias inherent in determining the volatility of its operating cash flows. This, of course, is not the case for frequently traded assets (e.g. shares of a mining company), where the volatility, i.e. the annualised standard deviation of daily price changes, captures the effects of both market risks (i.e. commodity prices and exchange rates) and private/project risks (i.e. reserves and grades, metal recoveries, variability of capital and recurrent costs etc.). In addition, most real option analysis papers feature simplified and to some degree unrealistic examples. This is particularly unhelpful where alternative investment options inevitably lead to different levels and timing of significant depreciation and amortisation charges against revenue, often the main or even the only source of cash flows, and to different tax liabilities, resulting in very different cash flow patterns and therefore project values. These issues have contributed to the low level of adoption of real option analysis by the mining industry. This paper makes empirical use of a realistic discounted cash flow model of a copper mine to compare the results obtained by various real option analysis approaches. It concludes that both the positive bias inherent in using an estimate of volatility aggregating the effect of all sources of uncertainty and, to a degree, modelling complexity can be circumvented by using real option analysis approaches, such as decision trees or Monte Carlo simulation, that rely on the probability distributions of individual uncertain variables rather than aggregated forms of cash flow volatility, producing more accurate and generally more conservative real option values.

Renewable energies are a natural replacement for conventional or fossil fuel energy generation. One of these sources, wind energy, has exhibited significant cost reductions during the last decades. Even though this historical cost reduction trend is well known in the industry and in the academia, information on this cost trend and volatility has been scarcely incorporated in previous works, thus a natural concern arises when assessing their influence on the economic valuation of wind farms. Moreover, wind projects are modular in size and have a short time-to-market, providing a valuable managerial flexibility to defer investment under non-attractive market conditions, such as high development cost scenarios. Traditional evaluation tools often consider those scenarios, wrongly assuming that wind-developers would move forward with the project under such conditions. Accordingly, this paper analyzes the effect of incorporating both generation cost history and investment flexibility in the valuation of wind farms in the United States using Real Options methodology. Taking two decades of cost data and a reference wind farm, this “uncertainty-flexibility” effect is incorporated and valued, finding that the value of the wind project is 14.2% larger than the one neglecting such effect – where cost stochasticity and managerial flexibility are ignored. Therefore, traditional tools for project valuation, such as discounted cash flow and scenario analysis can no longer solely be used, as they do not properly account for the cost reduction trend, uncertainty, and managerial flexibility that a wind farm could face.

Renewable energy technology is being adopted into energy plans worldwide to reduce the mounting CO2 emissions of traditional energy sources. Currently in Thailand, there are approximately 15 million solar panels (2600 MW) which will need to be disposed of in the coming years. The average lifespan of a crystalline silicon panel is between 20 and 30 years, and responsible treatment of these end-of-life panels is necessary to minimize environmental burdens. Thailand’s current plan is to landfill these panels. This study hopes to shed light on the environmental and economic paybacks that could materialize from recycling solar panels. It has been hypothesized that recycling solar panels could result in less environmental burdens than landfilling, but at an added monetary cost. Using LCA methodology and the EcoInvent database, this paper compares the environmental impacts of landfilling end-of-life crystalline silicon panels with those of two different recycling methods. By recycling silicon-based solar panels, valuable metals within the panels can be recovered instead of lost to the landfill. Recycling PV panels is less environmentally burdensome than landfilling when credits are applied to the recycling methods for the avoided production of materials that are recovered from the panels. Using the discounted cash flow method, this paper also compares the three waste management plans financially, as costs will inevitably influence how PV waste is managed in Thailand in the years to come. Neither of the recycling facilities were found to be economically profitable, however the cost to recycle could be as little as $0.03 per kg.

One of the main challenges associated with utilisation of the renewable energy is the need for energy storage to handle its intermittent nature. Power-to-Gas (PtG) represents a promising option to foster the conversion of renewable electricity into energy carriers that may attend electrical, thermal, or mechanical needs on-demand. This work aimed to incorporate a stochastic approach (Artificial Neural Network combined with Monte Carlo simulations) into the thermodynamic and economic analysis of the PtG process hybridized with an oxy-fuel boiler (modelled in Aspen Plus®). Such approach generated probability density curves for the key techno-economic performance indicators of the PtG process. Results showed that the mean utilisation of electricity from RES, accounting for the chemical energy in SNG and heat from methanators, reached 62.6%. Besides, the probability that the discounted cash flow is positive was estimated to be only 13.4%, under the set of conditions considered in the work. This work also showed that in order to make the mean net present value positive, subsidies of 68 €/MWelh are required (with respect to the electricity consumed by PtG process from RES). This figure is similar to the financial aids received by other technologies in the current economic environment.

The necessity to decarbonise the transportation sector has triggered the exploration of alternative cleaner fuels that can successfully substitute fossil derived fuels. Dimethyl ether (DME) poses as a promising candidate due to excellent combustion properties and low greenhouse gas emissions. Recently, the power to liquids (PtL) concept in conjunction with the carbon capture and utilisation (CCU) scenario have emerged as sustainable ways to produce carbon based material and contribute into satisfying the ever growing energy demand. In view of these, the goal of the present study is to determine the technical performance and economic viability of a novel dimethyl ether (DME) production route via captured CO2 hydrogenation within a power to liquid context. Mass and energy balances were solved and integrated by means of simulations using Aspen Plus V10 and Matlab R2017b software. Based on a plant that produces roughly 740 tonnes of DME per day, the global energy efficiency of the proposed process configuration is equal to 44.4% while the overall achieved CO2 conversion to DME is 82.3%. A typical discounted cash flow analysis revealed that the deterministic minimum DME selling price (MDSP) is 2193 € t−1 (or equally 75.62 € GJ−1); this figure is approximately 5-fold greater than the gate price of conventional diesel. The factors that mostly affect the MDSP are associated with the electrolysis unit, i.e. electricity price as well as electrolyser efficiency and capital cost. Changes in the renewable energy price cause wide fluctuations in the DME market price of −70% to +21%. Finally, stochastic uncertainty analysis, based on Monte Carlo simulations, exposed a 95% confidence interval for the MDSP to be within the range of 1828–2322€ t−1.

Community forest enterprises facilitated by non-governmental organizations (NGOs), using portable sawmills to produce rough-sawn lumber is one approach being pursued by tropical forest indigenous communities to improve their livelihoods. To investigate the profitability of portable sawmills operated by community forest enterprises, we developed a discounted cash flow model with a Monte Carlo risk analysis simulation. We populated this model using forest inventory data from six forest sites in Papua New Guinea, combined with cost and revenue data collected in country. We found that the application of this small-scale native forest management model has a high likelihood of producing a negative net present value (NPV). The cash outflows to produce the lumber are found to be consistently greater than the cash inflows from lumber sales, resulting in a probability of achieving a positive NPV of 0.04. If only the most valuable species are harvested the probability of achieving a positive NPV increased to 0.56. However, the communities would be at risk of overexploiting or high-grading their forests. We recommend that future community forestry projects utilizing portable sawmills explore value adding opportunities for rough-sawn lumber to overcome the high costs of portable sawmill operations and reduce the potential occurrence of forest high-grading.

Gasification is one of the most promising technologies for conversion of biomass into power generation due to its tremendous potential for improving the efficiency of energy conversion and reducing the cost of electricity (COE). In this study, the techno-economic feasibility of distributed power plants via wheat/corn straw gasification in China was investigated, and an economic model was established using a basic discounted cash flow analysis to estimate economic performance of the power plants. The effects of key variables (such as scales, feedstock cost, electricity prices and run time etc.) on economic performance were analyzed, and the results showed that plant scale and straw cost are the most influential parameters on the plant economic performance. It is estimated that a plant with a capacity of 5 MWe can be the optimal option for agricultural straw gasification for distributed power generation, the COE is 0.402 CNY/kWh, and SO2, NOx and dust emission are 2.5, 2.0 and 0.038 g/kWh, respectively. The net present value (NPV) and the annual average of return on investment (ROI) of the plant are 85.9 million CNY and 49.7%, respectively, with a high discount of 0.12 at a current feed-in tariff (0.75 CNY/kWh) for biomass to power in China, suggesting a good economic feasibility and market competitiveness. The deployment of agricultural residues resources gasification to distributed power generation displacing coal-fired power to supply electricity with rural area shows a significant potential in pollutants emission reduction and coal saving. Biomass gasification for distributed power generation serves as a sustainable technique for utilization of agricultural resources in practice, and would be widely applied in the near future supported by renewable energy strategies of Chinese government.

In this paper, we report an integrated techno-economic analysis of glycerol steam reforming (GSR) targeting distributed H2 refueling stations for a H2 production capacity of 700 m3 h−1. A process simulation based on mass and energy balances was performed to identify the product yield at effect of temperature and water/glycerol ratio. The results show that temperature of 900 K and a water/glycerol ratio of 9 are optimal to techno-economically operate a GSR process. An economic analysis using itemized cost estimation, sensitivity analysis (SA), and profitability analysis (PA) was carried out to investigate the economic feasibility of GSR for distributed H2 refueling stations. The unit H2 production cost was 4.46 $ kgH2−1 at the optimum conditions identified in the process simulation, and the most influential economic key factor was the reactant from the SA. Meaningful economic indicators such as net present value, discounted payback period, present value ratio, and rate of return on investment were obtained from the PA through a discounted cash flow diagram. Moreover, a cumulative probability analysis based on an uncertainty analysis using a Monte-Carlo simulation method was applied to unit H2 production cost and B/C ratio calculations to quantify the risk of a proposed GSR process as premature technology providing crucial guidelines to decision-makers.

Geothermal energy has been considered as a new and promising source of clean heating in some areas in China. However, huge initial investment cost and high uncertainties in policy, geology and technology have been seriously hindering its development. Developing effective policies and strategies to attract more investment for geothermal heating is a big challenge for the government. Therefore, a real option model was proposed to find the optimal investment strategy for hydrothermal geothermal heating projects with average well depth of 1350 m under various uncertainties in policy, technology and geological aspects. Meanwhile, an integrated Thermo-Hydrological Coupling Model was developed to calculate the relationship between geological conditions and the geothermal heating economics. Nine geological scenarios were proposed considering different geothermal gradient and rock permeability and a sensitivity analysis was conducted to investigate the effects of different supporting policies and mechanisms. Based on obtained empirical results, it was concluded that, (i). The real option analysis framework is more applicable in exploring investment strategy of hydrothermal heating projects than discounted cash flow method; (ii). Higher subsidy level has an obvious impact on investment value but very limited impact on timing; (iii). Technology progress and flexible subsidy phase-out mechanism can attract the investment effectively.

Recently, recycling of municipal solid waste incineration (MSWI) fly ash has gained increasing interest, although it is still unclear if recycling is preferable over disposal from an economic and environmental point of view. The objective of the present study is to assess the resource potential of MSWI fly ash for the production of three different commodities (cement, metals, de-icing salts) from a private investor’s micro and a public entity’s macro perspective. Therefore, the environmental impacts and economics were determined by life cycle assessment (LCA) and discounted cash flow (DCF) analysis, respectively. Monetary valuation was applied to the LCA results in order to determine the external costs, which were subsequently added to the DCF analysis results from the macro perspective (i.e. internal costs) to determine the socio-economic viability (i.e. total costs) of MSWI fly ash recycling. The resource classification scheme UNFC was used to classify MSWI fly ash for utilisation in cement production, metal and salt recovery based on the combined result from LCA and DCF analysis. The consideration of project feasibility and geological knowledge leads to the classification as commercial project (111) for cement production (micro and macro view) and for metal recovery (macro view). Metal recovery is classified as other combination (211) from a micro view due to a negative median net present value and salt recovery is classified as non-commercial project (321) from a micro and macro view. It was demonstrated that monetary valuation of LCA results is a useful tool for including external costs into resource classification.

The discounted cash flow valuation methodology calculating the net present value, and derivatives of this methodology, rely on the use of discount rates to arrive at a value. Generally, a single discount rate is used over the life of the resources project. Where discounting factors using more than one discount rate are used, these factors seldom incorporate the impacts of changing debt to equity ratios, increasing capitalization of projects, equity returns trending towards the risk free rate and finally a defendable premium incorporated to reflect technical risk. This paper provides a discussion and solutions to these issues and gives the reader simple yet defendable tools to reconsider what, why and how discount rates should be used.

In a 2013 paper (Mellichamp, 2013), the author developed an internally-consistent discounted cash flow (DCF) model that represents the key financial outputs of a conceptual chemical process design using just four variables: • Total investment, TI (capital required to construct and operate a project for NTotal years), • ROIBT and NPVproj (the traditional annual and long-term (NPV) profitabilities), and • NPV% [a new metric whose reciprocal, (NPV%)−1, directly expresses short-term project risk]. A traditional spreadsheet relating these four dependent long- and short-term financial metrics to a project's two independent design variables, PBT and FC, is functionally dependent on the many process design parameters (tax rate, discount factor, etc.) and highly complicated, involving non-linear (mostly geometric) relationships. Surprisingly, an exact linear-in-the-parameters “inner model” including the usual nonlinear relation for ROIBT is obtained by collapsing the original large-scale financial model (the complicated spreadsheet) using these four dependent variables, if the coefficients are functions of fixed design parameters , as when held constant in design. The power/utility to understand several key features of a project's design financial characteristics are revealed via the “inner model” through this reversal of the usual modeling hierarchy. The “outer model” coefficients incorporate the highly non-linear DCF functionalities. The new form is referred to as “exo-parametric” or an “inside-out” model.

The wind energy market is rapidly growing in Turkey which made it one of the top three countries in Europe, and the seventh in the world, in terms of wind power capacity addition in 2016. Turkey has high onshore and offshore wind power potential which is widely distributed across the country. However, there has been no offshore wind farm (OWF) in operation in Turkey. This paper performs a comprehensive techno-economic analysis of OWF projects in three of the most promising wind locations (namely, Bozcaada, Gokceada, and Bandirma). The optimal OWF sites are selected by applying a multi-criteria site selection method to Turkey's coastal regions. Technical analysis consists of annual energy production estimation using the Virtual Wind Farm model and development of various electrical system design topologies for the proposed OWF projects. A detailed economic feasibility analysis is then conducted using a discounted cash flow economic model that considers current Turkish renewable energy support schemes under various discount rates. Taking the OWF investor's perspective, this study accounts for the key economic indicators which are used in the decision-making processes. The results of various model runs are compared to determine the best options for the proposed OWF investments to be profitable. It is shown that the proposed OWF projects are economically feasible only in the case of meeting certain techno-economic conditions. The radial electrical design is proved to be the most cost-effective option. Among the proposed projects, the Bozcaada OWF appears to be the best investment option with a levelized cost of electricity (LCOE) of $81.85–109.55 per MWh while the Bandirma OWF is the least economically viable with an LCOE of $100.73–135.97 per MWh. The findings are extrapolated to suggest feasible recommendations for the investors and policy makers which will help to shape the offshore wind energy outlook of Turkey.

This paper measures the predictive power of buy-sell-and-hold recommendations made by students engaged in the management of a student-managed investment fund (SMIF). In their roles as analysts and portfolio managers for the SMIF, undergraduate students were required to follow traditional security analytical techniques such as discounted cash flow analysis and comparative valuation that were taught in the introductory investment management class, which is a pre-requisite. We evaluated the stock price performance of the stocks which the students analyzed across multiple holding periods, following student recommendations to buy, sell, or hold. We also compared the recommendations of the student-analysts to the contemporaneous recommendations of sell-side equity analysts.

The cost of capital is the expected rate of return that the market requires in order to attract funds to a particular investment and is one of the most important concepts in finance. It may be described in simple terms as the expected return appropriate for the expected level of risk and is also commonly called the discount rate, the expected return, or the required return. There are three broad valuation approaches: (i) the income approach, (ii) the market approach, and (iii) the cost or asset-based approach. The country risk premia (CRPs), equity risk premia (ERPs), and relative volatility (RVs) can be used to develop cost of capital estimates for use in income approach-based valuation methods. Of the three aforementioned approaches to estimating value, only the income approach typically requires cost of capital estimates. The cost of capital is a critical input used in income approaches to equate the future economic benefits (typically measured by projected cash flows) of a business, business ownership interest, security, or intangible asset to present value. The income approach is most often applied through a discounted cash flow (DCF) model. A basic insight of capital market theory, that expected return is a function of risk, still holds when dealing with cost of equity capital in a global environment. Estimating a proper cost of capital (i.e., a discount rate) in developed countries, where a relative abundance of market data and comparable companies exist, requires a high degree of expertise. Estimating cost of capital in less-developed (i.e., “emerging”) economies can present an even greater challenge, primarily due to lack of data (or poor data quality) and the potential for magnified financial, economic, and political risks. A good understanding of cost of capital concepts is, therefore, essential for making global investment decisions.

In this paper we outline how to value private companies and work through a real case study. The corporate finance and valuation techniques on display can be used to value any private company or project that is illiquid with little or no market data. Together with this paper we provide the full background information for the case study, including consolidated balance sheet, cash flow and income statements and an Excel workbook with a full valuation breakdown . Two valuation approaches are presented. The first approach is called ‘multiples’ and requires we first identify sensible comparable companies with public data and can serve as a reasonable proxy for our underlying firm or project. Known proxy enterprise values are converted into multiples of EBITDA and extrapolated to value the private company or project of interest. Enterprise value can be measured as a multiple of sales, earnings, EBITDA, EBIAT and many income factors. Typically practitioners measure enterprise value as a multiple of EBITDA to exclude sales margin, capital structure, debt and leverage and other idiosyncratic biases. The second valuation method takes a discounted cash flow (DCF) approach. This approach is forward looking; it projects and values the future cash flows of a company. This method lends itself to richer analysis compared to the multiples approach, but relies heavily on assumptions surrounding cash flow projections, growth rates and the weighted average cost of capital (WACC). The WACC acts as a yield or discount factor and is required to value the cash flows of the firm or project (Burgess, 2020). Finally we compare the prices from several different approaches to arrive at a suitable price range. It is important to note that all approaches involve assumptions and approximations of some kind. Therefore practitioners seek to establish a reasonable price range rather than a single price. Transactions however must take place at a single price and law suits are a popular commonplace negation tactic to squeeze for additional value.

Based on the insight that risk exposure as quantified in the consumption based asset pricing model (CCAPM) is linearly proportional to the cash flow growth rate, we introduce a discounted cash flow model with a time-varying expected return structure matching the implicitly assumed risk exposure at each future point in time in the valuation model, i.e. the assumed cash flow growth rate process. This reduces the range of reasonable valuations outcomes to useful levels, given that the linearly proportional term structures of potential cash flow growth rates and equity risk premia are complementary, offsetting variables in a discounted cash flow pricing model. In the same manner we elaborate a time-varying internal cost of capital (ICC) model that reflects the implied risk exposure at each future point in time and thus has a clear interpretation as an expected return process. This time-varying ICC model is superior to the constant ICC model in a Fama-MacBeth regression setting to predict future realised returns. And using the expected return of the time varying ICC model as control in a Fama-MacBeth regression of the profitability, the investment and the value factor, both the profitability and the value factor become insignificant in explaining future realised returns. The superiority and economic significance of the time-varying ICC model is further con firmed in a trading strategy with yearly rebalancing.

When finance textbooks address net borrowing calculation in free cash flow to equity perpetuity, they predominantly do it as the proportion of firm net investment financed by debt (Alternative 1). This method does not apply to all scenarios and requires a peculiar debt ratio. Alternatively, one can calculate net borrowing by applying sustainable growth rate to existing debt (Alternative 2). This method is broader and of simpler implementation. Alternative 1 can lead students, instructors and practitioners to confusion and, therefore, to misapplication and/or misuse. I suggest that neglected Alternative 2 becomes the standard method.

The rapid worldwide growth of renewable energy has been largely underpinned by government support over the past decade. The need for subsidy is fading as the cost of electricity from renewables converges with that from fossil fuels, but the withdrawal of support schemes will also remove the revenue stability offered by auction schemes and contracts for differences. Exposure to market risk (fluctuating wholesale electricity prices) raises the cost of capital for merchant renewable generators. Here we quantify the extent to which increased volatility in future power prices affects revenues by combining electricity market and stochastic discounted cash flow models. Renewable projects relying purely on merchant pricing may see cost of capital rise by two percentage points (e.g. from 7% to 9%). Unless new private or government actors provide hedging solutions, fewer developers will undertake new renewable energy projects, slowing the energy transition and increasing its cost to society.

In any context where a discounted cash flow valuation is required, there is the issue of estimating the continuing value. The most common way to do that is to assume that by the terminal horizon the company is in a steady state and is growing at a constant rate. The issue is how to handle inflation. The problem is that it is often done wrong and the impact is typically material. Because there remains significant confusion, in this paper we simplify the analysis by isolating the two key issues and providing example calculations. We show that even at the current 2% level proper treatment of inflation has a size-able impact on valuation. If inflation were to accelerate as a result of current monetary and fiscal policies, the significance of this issue will increase.

Terminal Value (aka Horizon Value) is the value of a firm when the firm is expected to grow at a constant rate forever. The method to calculate value a constant-growth firm is sometimes called Capitalization. Currently, and for decades, the primary method, if not the only method, to calculate Terminal Value is a formula commonly known as the Gordon Growth Model (GGM). In addition to the constant growth assumption, Gordon Growth Model assumes “constant capital structure” which results into “Constant WACC” (Weighted Average Cost of Capital) as a discount rate. This paper will show following: 1) The “constant WACC” assumption of the Gordon Growth Model implies that the capital markets will accept “Dividend First” financing terms. However, the capital markets function with “Debt First” financing terms. When a firm operates with “Debt First” financing terms, but the value is based on “Dividend First” financing terms, the equity IRR is less than expected. This means GGM overvalues a firm. And, such over valuation is material, 10 to 50% and sometimes even more. 2) Introduce Advance Growth Model (AGM) to value a constant-growth firm assuming capital markets acceptable “Debt First” financing terms. AGM formula is a generalized formula for Terminal Value; AGM value is equal to GGM value if GGM assumptions are plugged into the AGM formula. GGM formula is very elegant; AGM formula is very complex even though it has only 3 more input variables. A free spreadsheet with GGM and AGM formulas is available in the main article.

SYNOPSIS We provide insights into the inputs and valuation models used by valuation specialists. We survey 172 valuation specialists and conduct several follow-up interviews covering various topics, including the valuation inputs, models, and industry information that they use, as well as how they estimate long-term growth and the cost of capital. We find that valuation specialists rely on their professional judgment to select a valuation model but prefer the discounted cash flow (DCF) model. They primarily rely on the firm's historical performance when forecasting the financial statements, but communication with management is particularly relevant for forecasting future earnings or cash flows. When estimating the cost of capital, they most commonly use the risk-free rate with subjective adjustments. The results of our study provide insights on the information use of valuation specialists that are relevant to other valuation specialists, managers, academic researchers, and regulators. JEL classification: M41; G12; G17; G32.

Valuation of a distressed company is a very tricky issue, for which many approaches and methods have been provided by the literature. Unfortunately, many of the more suitable proposals from a theoretical point of view (i.e., those based on option pricing theory, and even integrated with game theory) are very difficult to apply to real cases. To face the many contingencies emerging in a real case valuation, a scenario discounted cash flow (SDCF) model is provided here. The focus is on companies at an advanced stage of distress, where their ability to operate as a going concern is in question, and maintenance or recovery of business continuity requires significant interventions in the firm’s strategic, operational, and financial structure. In this context, SDCF, with a number of arrangements elaborated here, appears useful for valuing assets, debt, and equity – from current or potential new investors – and the interactions between them, which are particularly critical for distressed companies. At the same time, SDCF takes into account the firm’s liquidation option, not only at the valuation date but even after a restructuring plan has been launched. The going-concern value including the liquidation option should be the reference point for judging the suitability of business continuity compared to liquidation. In presenting the model, the key concepts and methodology adopted are set out following a numerical example inspired by a real case.

The UK is believed to hold prolific reserves of shale gas; the quality of which has been compared and sometimes branded superior to the much successful US shale plays. Nonetheless, after more than ten years since the 13th Onshore Licensing Round, the fracking industry is said to have benefited from just £400 million - £500 million of estimated investments and only one partially fracked well with yet an uncertain fate of commercial production. This paradox motivated the current research. Based on a discounted cash flow model, the economic feasibility of the tax regime was evaluated with a special interest in the pad allowance [PA], a major incentive of the fiscal regime. We find that the design of the fiscal regime well achieves the Government's financial objectives, but fails to support shale gas investments at lower gas prices. PA introduces further variability in investor cash flows, ultimately defeating the ethos of the incentive. We propose a reduction in the overall tax rate from 40% to no more than 21%; a removal of the additional tax charge (Supplementary Charge) and an amendment of PA rules to; (1) allow an extension of RFES to PA; (2) permit transfer of activated PA across companies in the same group; and (3) redefine capital expenditure to include intermediate well retirement costs necessary to drill new wells to stimulate production. Such a tax strategy would simplify and align the UK fiscal regime with practices across the US, China, Algeria and Canada. Importantly, it would better match the risk of shale gas investments to its rewards and could better attract investments. We recommend the strategy for emerging unconventional oil and gas producing countries for an efficient design of their fiscal regimes.

The paper is a practitioner validation of the well-known yet conveniently ignored reality that equity Multiples such as the popular Price Earnings Ratio have essentially no theoretical foundations as economic value metrics; they are effectively a matter of market convention and convenience. Multiples are preferred over gold standards of valuations such as the Discounted Cash Flow (DCF) methodology on the ground that the former is easy to calculate while the latter requires a substantial amount of explicit assumptions such as profit margins, discount rate, and growth rate, thus making the results of the discounting exercise unreliable. The paradox is that the same input and assumptions used in the DCF are required for the variables used to calculate the Multiples. The difference is that these variables are explicitly quantified in the DCF while they are implicit in the Multiples, i.e. decided by someone else and “concealed” in one number. The paper exposes this point analytically by equating Multiples to universally accepted valuation principles, thereby establishing a clear link and dependence of Multiples to fundamental drivers of economic value. Using descriptive arguments, the paper then debunks the “secular” bedrocks for Multiples application, such as the practice of assessing “value” by comparing Multiples across arbitrary benchmarks - e.g. history, comparable, markets, countries, etc. - and then relying on mean-reversion strategies to “arbitrage” discrepancies. Lastly, the paper echoes the admonition of confusing accounting Earnings with Economic Earnings, thus providing support to those quipping that “Cash(flow) is a fact, Earnings is an opinion”. Ultimately, the intended contribution of this paper is to catalog these arguments all into one place, and for the practitioner’s consumption. The conclusion and the advice are that Multiples, given their widespread and obstinate popular use, should be considered at best as momentum and sentiment indicators, worshiped by speculators and shunned by fundamental investors.

This paper intends to highlight a framework for valuating companies using the Discounted Cash Flow (DCF) model. This framework is a culmination of time spent at the AGSM, previous academic research on valuations and industry mentorship by various mentors/advisors in the financial services sector.

Discounted-cash-flow valuations are upward biased even when estimates of market discount rates and cash flow growth rates are unbiased, because both compounding and discounting are convex functions. The upward bias in the estimated value of a long-lived cash flow stream can exceed 25% under plausible assumptions regarding magnitudes of estimation errors, which can equate to upward bias in estimated net present values that exceed 100%. This bias may help to explain the value premium puzzle, observed takeover premia, long run returns after IPOs, and high equity valuations during periods of low real interest rates. A method of correcting value estimates for the bias is proposed.

This paper presents a real valuation performed by a well-known investment bank, with two common errors and with two very different values for the equity of a firm: a) €6,9 million calculating the Present Value of expected free cash flows (FCF) discounted with the WACC rate and then, subtracting the value of debt; b) €4,2 million calculating the Present Value of expected equity cash flows (ECF) discounted with the Ke rate (required return to equity). We identify the two main errors of the valuation of the investment bank and calculate the “right solution”: €5,9 million. The paper also contains 210 answers and 56 comments from readers to the questions of the previous paper (The Most Common Error in Valuations using WACC https://ssrn.com/abstract=3512739 that did not contain the “right solution”.)

We present two stock recommendation systems based on stochastic characterization of firm present value that extends the conventional discounted cash flow analysis. The single-stock quantile recommendation system compares the market price of a company's stocks with the estimated distribution of the company's fair value to obtain an individual measure of mispricing, while the cross-sectional quantile system builds a relative measure of mispricing using the fair-value distribution of all firms. Both systems use mispricing information to build sell side and buy side portfolios. Statistical tests show that these portfolios consistently deliver significant excess returns even when rebalancing costs are accounted for. Moreover, we show how analysts' indications can be improved by using the first two moments of their recommendations following the same procedure of the cross-sectional quantile system.

To value shares there are two usual methods that, if properly applied, provide the same value: 1/ Present value of expected free cash flows (FCF) discounted with the WACC rate and then, subtract the value of debt; and 2/ Present value of expected equity cash flows (ECF) discounted with the Ke rate (required return to equity). Both valuations must provide the same result because both methods analyze the same reality under the same hypotheses; they differ only in the cash flows taken as the starting point for the valuation. But in many valuations performed by investment banks, analysts, consultants, finance professors… both methods do not provide the same value. This paper presents a real valuation performed by a well-known investment bank, with two very different values: €6,9 million using method 1/, and €4,2 million using method 2/.

Energy poverty in the majority of the rural households in Kenya is a threat to economic and social development; hence the availability of an affordable and reliable domestic energy source is important. This study investigated: the potential resources for biogas for cooking, suitable anaerobic digesters that could be deployed in rural households, and also the viability of a small community biogas business model. Conservative estimates of the business model parameters and sensitivity analysis revealed that there was adequate biogas potential in central and western Kenya while water scarcity affected other regions' opportunities. Cattle manure was the predominant feedstock, although crop waste has possibilities to contribute to biogas production. Economically and technically, the inflatable tubular digester was found to be the most suitable type for biogas production in rural Kenya. Discounted cash flow analysis of the business model proved a profitable business to supply an affordable household energy at 0.55€/Kg of biogas, with projected household savings of 249€ annually. Labor cost was found to have high significance on the feasibility of the business model which was also sensitive to changes in biogas revenues. Kenya's rural areas have significant biogas potential to reduce energy poverty, generate income and aid social development.

This paper assesses the economic feasibility of ethanol and higher alcohols production through a thermochemical route in Brazil. This route comprises mainly sugarcane bagasse gasification, syngas cleaning, and synthesis of alcohols. Ethanol production costs and associated risks are evaluated in different scenarios. A case study of a virtual plant to be located adjacent to a sugarcane mill, in the state of Sao Paulo, is presented with the objective of finding the minimum ethanol selling price (MESP) that makes the plant’s project economically feasible. The analysis utilizes first the traditional discounted cash flow method and then proceeds to use a stochastic approach, which is more suitable to study economic feasibility under uncertainty conditions. In the latter approach, prices of raw materials and products are modelled through a mean reverting stochastic process, and economic feasibility is analysed with the help of Monte Carlo simulations. Results are summarized via a histogram of the MESPs obtained for different simulated price scenarios. Finally, the project’s risk is evaluated by computing the number of instances in which the MESP is greater than the ethanol market price.

The power generation from renewable sources is an interesting alternative to the diversification of the energy matrix of a country. This paper presents a probabilistic valuation method for power generation projects from renewable sources. It focuses on biomass plants that use sugarcane bagasse. The main objective is to bring a wider knowledge surrounding projects for investors that participate in energy auctions. Therefore, the highlight is for the net present value that allows us to analyze the financial viability of projects. Two stochastic variables are involved in the problem, the power generation and the energy price in the short-term market. Monte Carlo Simulation and Discounted Cash Flow methods are employed. A case study is carried out for a biomass plant. Sensitivity analysis is presented for different values of investment, bid, and minimum attractive rate of return. For each simulated scenario, the probability distribution of the net present value, the average net present value, and the internal rate of return are calculated. For the analyzed case study, the return of the project is more sensible to the bid value than the investment cost. The proposed method can be used as a tool to assist investors in energy auctions from renewable sources.

Medical device replacement decisions have considerable impact on the budget management and service quality levels of healthcare institutions, being particularly complex for modelling. In that sense, this paper develops a framework to support the decision-making process, employing cost analysis methods and shows evidence of the low relevance of operating and maintenance costs and the significance of innovative variables, such as the penalty costs, which valorize the pecuniary losses incurred by periods of device malfunction. As well as using the discounted cash flow model, the paper assesses the replacement process through the Real Options approach, providing enhanced valuations.

This article presents the first attempt to evaluate the direct economic return of the provision of public geoscience information in Chile. To achieve this goal the study uses multiplier effect ratios through the value chain of PGI and a probabilistic discounted cash flow model to evaluate the economic returns of different scenarios for the ongoing governmental program mandated to generate country-scale geological information, named the National Geological Program. The study shows that, in average, every dollar invested in PGI in Chile during the past three decades could have generated 11.5 dollars of government tax revenues from the mining industry (in terms of its NPV), with an IRR of around 21%. These results are in accordance with comparable studies abroad, but they should be taken carefully due to methodological restrictions of the study. These indicators are positive in almost all the scenarios considered in the study, despite that they show a wide range of results. Similar outcomes are obtained for the National Geological Program when different scenarios are evaluated.

We examine how a target’s information uncertainty level affects an acquirer’s valuation of the target and the acquirer’s gain realized from the transaction. Based on a simple perpetual discounted cash flow model, we argue that the valuation will be lower for a target with higher information uncertainty and acquiring a target with high information uncertainty can potentially create value for an acquirer’s shareholders. The empirical findings lend support to our arguments. Specifically, we observe that a target’s valuation multiple obtained from an acquirer is negatively correlated with the target’s information uncertainty level. An acquirer’s announcement return is negatively correlated with the valuation multiple given to the target but positively correlated with the target’s information uncertainty level. The results are robust against various measurements of valuation multiples and information uncertainty.