Interest Calculations; Preliminary Project Evaluation

Abstract

In previous chapters methods have been developed for estimating the cost of equipment, additions, modifications, and complete plants, and for the expense of manufacturing a product. This chapter will attempt to provide the initial procedures for evaluating the hoped-for profitability of chemical plant investments, and of estimating the relative attractiveness of different projects and capital expenditures. The first step involves three additional pieces of information that are needed: the product sales value, the company income tax requirements, and a knowledge of the effect that compound interest has upon investments. This later subject is not only important for the money that may be borrowed on a project, but even more so to examine how the project investment might compare with an alternate investment (including a purely financial one, such as bonds, CDs, etc.). This topic shall be reviewed first in the following section.