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Module11 - Decision-Making Preliminaries Estimating Cash...

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Decision-Making Preliminaries Estimating Cash Flows and Sensitivity Analysis Part I
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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…
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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
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Step 3 Defined Problem Generated Solutions (Reduced to Feasible Set) Now: Gather Relevant Information Estimate Cash Flows Estimate Length of
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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?
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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
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Common Investment Salvage Value F Revenues ( A ) Operating and Maintenance (O&M) Costs 0 n 1 2 P Investment
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