Module11 - Decision-Making Preliminaries Estimating Cash...

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Unformatted text preview: Decision-Making Preliminaries Estimating Cash Flows and Sensitivity Analysis Part I Key Concepts • Last Module: Problem Definition and Solution Generation • This Module: Estimating Cash Flows and Sensitivity Analysis • Solutions have been defined so it is now time to draw the cash flow diagram for subsequent analysis… Economic Decision Process 1 Problem (need or opportunity) Recognition and Definition 2 Generation of Solution Alternatives 3 Development of Feasible Solution Alternative Cash Flows 4 Economic Evaluation of Alternatives, including cases under uncertainty and risk 5 Selection and Implementation of Best Alternative 6 Post-implementation Analysis and Evaluation Step 3 • Defined Problem • Generated Solutions (Reduced to Feasible Set) • Now: Gather Relevant Information – Estimate Cash Flows Questions to Answer • What do we need to estimate? • How accurate do our estimates need to be? • How can we make the problem of estimating costs for an entire project manageable? • Where can we find the necessary information? • What methods should we use to estimate? What to Estimate? • Estimates should cover the life-cycle of the decision – Initial costs (acquisition and development) • Referred to as the Development phase – Costs and revenues from operations • Referred to as the Operational phase – Salvage costs and revenues from disposal • Referred to as the Disposal phase Common Investment Salvage Value F Revenues ( A ) Operating and Maintenance (O&M) Costs n 1 2 P Investment Initial (Investment) Cash Flows • These are generally one-time costs...
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This note was uploaded on 01/11/2012 for the course EIN 4354 taught by Professor Tufecki during the Fall '08 term at University of Florida.

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Module11 - Decision-Making Preliminaries Estimating Cash...

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