United States Pollution, Prevention And EPA 742-B-94-002
Environmental Protection Toxic Substances January 1994
Agency (7409)
&EPA P2/Finance
User's Manual
Pollution Prevention Financial
Analysis And Cost Evaluation
System For Microsoft Excel For
Windows, Version 4.0
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P2/FINANCE USER'S MANUAL
Pollution Prevention Financial Analysis and Cost Evaluation System
for Microsoft Excel for Windows, Version 4.0
Tellus Institute
11 Arlington Street
Boston, MA 02116-3411
Tel: (617) 266-5400
FAX: (617) 266-8303
Version 2.0: Copyright (c) 1993 - Tellus Institute, Boston, MA, USA.
All rights reserved. No part of this publication or associated software may be reproduced,
stored in a retrieval system, or transmitted in any form or by any means, without the prior
written permission of the publisher.
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LICENSING AGREEMENT AND DISCLAIMER
LICENSE AGREEMENT FOR P2/FINANCE
P2.FINANCE, including the software disk and User's Manual, is proprietary and copyright by
Tellus Institute, Boston, MA, USA. It is provided by EPA as a service to government
organizations for purposes of facilitating the financial analysis of pollution prevention projects.
P2.FINANCE may be reproduced only for use within the recipient's organization.
Reproduction, transfer and/or distribution of P2/FINANCE in any form whatsoever outside the
recipient's organization is strictly prohibited.
WHERE TO GET P2. FINANCE SOFTWARE
Federal, State, and Local Government Employees
The P2. FINANCE software is available to all federal, state and local government employees
free of charge from the Environmental Protection Agency, Pollution Prevention Information
Clearinghouse(phone:(202)260-1023, fax:(202)260-0178), MC 3404, 401 M St. S.W.,
Washington, D.C., 20464.
Others
All others interested in obtaining copies of the software and/or the software manual should
contact the Tellus Institute, (phone:(617)266-5400, fax:(617)266- 8303), 11 Arlington Street,
Boston, MA 02116-3411.
USER SUPPORT HOTLINE
A technical support hotline is available from the Tellus Institute at no charge to users. The
hotline number is (617)266-5400 and is answered from 9:00 A.M. to 5:00 P.M.. Please report
any technical difficulties with the software directly to Tellus Institute at the above address.
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P2/FINANCE USER'S MANUAL
TABLE OF CONTENTS
1.0 Introduction 1
2.0 Hardware and Software Requirements 1
3.0 Starting Up 1
4.0 Layout of P2/FINANCE 2
5.0 Stepping through P2/FINANCE 2
5.1 Moving from window to window and page to page 2
5.2 Screen and data formats 7
5.3 Data entry
Step 1: Title Page 7
Step 2: Capital Costs 7
Step 3: Operating Costs 8
Step 4: Capital and Operating Costs Review,
Financial Parameters, Liability 10
Step 5: Cash Flows and Profitability Analysis 13
Step 6:. Printing a Report 14
5.4 Saving and cjosing the spreadsheet 14
Appendix A: List of Potential Costs A-l
Appendix B: Blank Spreadsheet B-l
Appendix C: TCA at work: A Case Study in the Pulp and Paper Industry C-l
Appendix D: Glossary of Financial Terms D-l
Appendix E: P2/FINANCE Assumptions E-l
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P2/FINANCE USER'S MANUAL
Pollution Prevention Financial Analysis and Cost Evaluation System
1.0 Introduction
P2/FINANCE is designed to simplify and quicken the task of organizing and analyzing cost
data, calculating annual cash flows, and generating financial indicators for pollution prevention
investments. P2/FINANCE is highly flexible and can be used for both small and large projects
for which there are few or many cost items which need to be considered. The program
accommodates^ numerous categories ~of costs and'savings in a disaggregated fashion* to assist'
the user in identifying and organizing relevant data for the analysis.
P2/FINANCE calculates and reports Simple Payback, Net Present Value (NPV), and Internal
Rate of Return (IRR) for purposes of project screening and sensitivity analysis. Since some of
the benefits of pollution prevention (i.e. liability avoidance, avoidance of capital costs for
pollution control, increased revenue from improved product image, etc.) occur in years after
the project is implemented, P2/FINANCE computes cash flows and financial indicators over a
15 year time horizon (i.e. IS years after the initial investment).
This manual assumes familiarity with financial concepts, the use of personal computers, the
purpose and use of spreadsheets, and the Excel software package. Financial calculations are
described in the main text of this manual only as necessary to implement entry of data into the
spreadsheet. More comprehensive descriptions of the financial terminology, assumptions, and
methods used are found in Appendices D and E.
2.0 Hardware and Software Requirements
The system is a user-friendly, customized spreadsheet file developed with Microsoft Excel
Version 4.0 for Windows and can be run on an IBM-PC, XT, AT or compatible microcomputer
which is equipped with the Excel software.1 A color monitor, though not required, will
facilitate data entry.
3.0 Starting Up
There are two files on the system diskette. The P2/FINANCE spreadsheet file, called
P2FINAN.XLS, is an "empty template" which must be copied for each project analysis. The
second is a customized print macro file, called P2FPRJNT.XLM.
FIRST TIME USERS: Copy the P2FINAN.XLS and P2FPRINT.XLM files onto another .
diskette or onto the hard drive of the computer. Use these duplicate files for project analysis,
keeping the master disk to generate later copies if necessary.
This system is also available in Lotus 1-2-3 for DOS version 3.4a.
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When you are ready to enter data into the spreadsheet, make a copy of the P2FINAN.XLS file
under a new name, preferably one that reflects the project that you are analyzing. One
spreadsheet is used per analysis.
4.0 Layout of P2/FINANCE
The spreadsheet file consists of nine pages, and six Excel Windows. Figure 1 illustrates the
page layout. The pages are described below:
Page 1 is a title page which includes fields for the date, project title, preparer's name,
organization, and comments.
Pages 2 and 3 hold user-entered capital cost data for the project.
Page 4 holds user-entered operating cost data.
Page 5 automatically reports a summary of the capital and operating cost data from
pages 1-3 and holds several user-entered financial parameters.
Pages 6 through 8 automatically calculate and report annual cash flows from data on
page 5.
Page 9 automatically calculates financial indicators based on data from pages 6-8.
Except where noted, page numbers refer to pages of the spreadsheet as listed above, not pages
of this manual.
5.0 Stepping through P2/FINANCE
Before beginning, it may be useful to refer to Appendices A, B, and C. Appendix A contains a
detailed checklist of potential costs and revenues. Appendix B contains a copy of the blank
spreadsheet and Appendix C contains a factual case study to familiarize users with the system
without initially having to collect or invent practice data themselves.
5.1 Moving from window to window and page to page
Because of the wide-spread layout, as illustrated in Figure l.and because of other spreadsheet
format issues, the best way to move around in the spreadsheet is by using the window access
instructions given below.
These instructions will take you through P2/FINANCE in the order in which the pages and
entry fields appear. First, open the print macro, P2FPR1NT.XLM, and then open the
spreadsheet file, P2FINAN.XLS. The spreadsheet screen will appear with six boxes as shown
in Figure 2.
The windows and pages can be accessed in any order. To access Window 2/Pages 2 and 3, the
capital costs pages, position the mouse cursor on the up arrowhead in the upper right corner
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FIGURE 1. Layout of pages within the P2/FINANCE spreadsheet
PAGE1
PAGE 2
PAGE 3
PAGE 4
PAGES
PAGES
PAGE 7
PAGES
PAGES
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of the box labeled "P2FINAN.XLS:2" as shown in the top screen of Figure 3, and click the left
mouse button. To return to the six-box display, position and click the mouse on the lower
double-arrow in the upper right corner of the screen shown at the bottom of Figure 3. Any of
the six windows may be accessed in the same way from the six-box display screen. If the
desired box does not have the necessary arrows, clicking once anywhere in the box will make
them appear.
Once a window of interest has been accessed as described above, data may be entered into the
one or more spreadsheet pages contained in the active window. To access the additional pages
in a window which contains more than one page, it will be necessary to scroll down or across
the screen. For example, to access page 3 in window 2, scroll down from page 2. Similarly, in
Window 5, to reach page 7 or 8 from page 6, scroll to the right.
Note: In some windows, it is possible to scroll completely past the pages of interest to
pet to pages normally contained in other windows, but this is strongly
discouraged.
If you are scrolling within a window and become lost, you can return to the top of the page
contained in the window in which you are working as follows:
Select the "Format" menu
Select the "Goto" option on that menu
Select the name of the appropriate page
a_Title_Page
b_Capital_Costs
c_Operating_Costs
d_Cost_Summary
e_Cash_Flows
f_Profitability
Although all of the choices a-f, as listed above, will always appear under the "Goto" command,
regardless of which window you are working in, DO NOT attempt to access pages in windows
other than the active window.3 The name of the active window always appears at the top of
the screen.
In addition to listing the options above, Excel will list the spreadsheet cell locations
corresponding to the last four names accessed by the "Goto" command. You should ignore
these four options along with everything listed after the note: "Do_Not_Use_Names_Below".
Note: Before saving the file and closing the spreadsheet, -please read section 5.4.
2 Accessing a page in an inactive window from the active window, either by scrolling or
using the "Goto" command will cause a confusing shuffle of window contents. If the user
accidentally accesses an inactive window page from the active window, the "Goto" command
should be used to return to the appropriate page in the active window before exiting from the
active window and returning to the six-box display screen.
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FIGURE 2. P2/FINANCE Window and Page Layout
rile Edit Formula Format Data Options Macro Window Help
DDDD
m i i i i i i i i i m
IT)
Title Page
Window 1
PAGE1
P2FINAN.XLS:2,
Capital Costs
Window 2
PAGES. 2 and 3
P2FINAN.XLS:3
Operating Costs
Window 3
PAGE 4
P2FINAN.XLS:4
Capital and Operating
Cost Summary
Window 4
PAGES
P2FINAN.XLS:5
Cash Flows
Window 5
PAGES 6-8
P2FINAN.XLS:6
Profitability Analysis Summary
Window 6
PAGE 9
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FIGURE 3. Moving from window to window in P2/FINANCE.
(maFra'ii awps"s--aaa3BgsaBaiaa|aaa^ v
File Edit Formula Format Data Options Macro Window Help
*-V»--- '-... .. . -.
P2FINANJCLS:1
alia^lfc|$H3p$f^jf| v
/\
«- I I*
A
t
*
1 III If."
P2FINAN.XLS:3
. Click here to select
/Window 2
as shown below
P2FINAN.XLS:4
P2FINAN.XLS:5
P2FINANJCLS:6
Spreadsheet Name
Fj[e Edit Formula Format Data Options Macro Window Help
i T i ' i" i I
(Capital Costs)
I., i
n
Click here to return to
the 6-box screen as
shown above
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5.2 Screen and data formats
P2/FINANCE contains many entries for capital, operating, and future liability costs and
savings. On color monitors, all text and data entry cells are highlighted in yellow. On black
and white monitors and on all printed copies, the cells which allow text and data entry are
shown as outlined boxes. Cells which are not highlighted in yellow (or are not boxed) are
"locked" and do not allow text or data entry. If the user attempts to enter data into or
otherwise edit any locked cells, the message "Locked cells cannot be changed" will appear on
the screen. The user should then click on the "OK" button to delete the message and proceed
with data entry into yellow (boxed) cells. Cost entries which are not relevant to the project
may be left blank. Costs may also be summed manually and then entered into the spreadsheet
in an aggregate form, if desired. However, data cannot be entered into Total columns.
Text which appears in blue or bright yellow cells at the top of data entry pages on the screen
are data entry and formatting reminders.
Due to space considerations, dollar signs do not appear in any of the data cells. As formatted,
the spreadsheet can handle positive or negative numbers (entered or calculated) of up to eight
digits on the Operating Costs page, and up to nine digits on all other pages. If numbers with
more digits are entered or calculated, error symbols (####) will appear in some cells in the
spreadsheet. To denote a negative number, a minus sign should be used. Commas need not
be entered.
P2/FINANCE performs many functions and calculations automatically. When this occurs, a
description of the function is given, in italics, below the instruction note in this manual.
5.3 Data Entry
Step 1 - Entering the Title Page Information Window 1, Spreadsheet Page 1
The title page contains entry fields for the date, project title, preparer's name, organization's
name, and comments. The date format to be used is month/day/year, e.g. 12/01/92. The
default name "Blank Spreadsheet" should be replaced with the appropriate project name.
P2/FINANCE automatically will copy the project name and date on the top of pages 2-9.
The remaining yellow-highlighted (boxed) fields can be filled as desired.
Step 2 - Entering Capital Cost Data Window 2, Spreadsheet Pages 2 and 3
Capital costs are one time costs for the project, which include: equipment, construction
materials, site preparation, installation, engineering, start-up/training, permitting, etc. Pages 2
and 3 of P2/FINANCE contain entry fields for many capital cost items. On page 2, enter brief
descriptions of Purchased Equipment needed for the project in the first column and the price
of the equipment in the corresponding row of the Costs column.
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P2/FINANCE automatically will calculate total costs for Purchased Equipment and enter
the total in the Totals column in the Purchased Equipment section.
A number or letter code can be entered in the Ref. column to refer to back-up documentation
for the project analysis. The number l.for example, can be entered into the Ref. column to
refer to an attached cost estimate from an equipment vendor for a piece of equipment listed in
the first column of the same row. Also, the user can enter information or reminders in the
Notes column to indicate, for example, that tax is included in purchased equipment price or
that the sales tax figure is based upon a 5% tax rate.
Enter cost estimates for all other capital costs for Materials, Utility Connections and New
Utility Systems, Site Preparation, Construction/Installation, Engineering/Contractor, Start-
up/Training, Contingency, Permitting, Initial Charge for Catalysts and Chemicals, Working
Capital, and Salvage Value in the spaces provided on pages 2 and 3 of the spreadsheet. All of
the capital cost categories, such as Purchased Equipment, provide blank lines to allow the user
to customize subcategories for each project. In addition, the user should feel free to overwrite
the default subcategories shown in yellow (boxed) cells with those appropriate for the project.
It is not possible, however, to add lines. In the event that there are not enough spaces for
relevant cost items, it is suggested that the user aggregate some cost items manually before
entering data into the spreadsheet.
P2/FINANCE automatically will calculate total costs for each cost category and enter the
results in the column marked Totals.
All capital cost items except Working Capital and Salvage Value are depreciated for tax
purposes in the cash flow and financial indices calculations on pages 6 through 9. Working
Capital is treated as a one-time expense at the beginning of the project and both Working
Capital and Salvage Value are treated as one-time revenues later in the project life. Because
Working Capital is cashed in as a revenue at the end of the project operating period, the sum
of the values entered for Working Capital on page 3 is automatically adjusted for inflation for
the year in which it is cashed out The Salvage Value entered is used for depreciation
calculations and is not adjusted for inflation; the entries for Salvage Value on page 3 should
therefore be an estimate of the actual future salvage value in the final depreciation year.
Note- In some cases, an investment -in pollution prevention may allow avoidance of a capital
expenditure in the future for a new pollution control device, retrofit of an existing
device, waste handling, or a storage system. The financial analysis of the pollution
prevention investment should include savings associated with any avoided future capital
expenditure. Step 5 on page 13 of this manual provides instructions for inclusion of
such savings in the analysis.
Step 3 - Entering Operating Cost Data Window 3, Spreadsheet Page 4
Operating costs and savings occur each year after the investment for the life of the investment.
They include the costs of raw materials, waste management, utilities, labor, regulatory
compliance, and others. To compute cash flows and financial indicators it is necessary to
calculate the net annual operating cost for the project, in other words, the difference between
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the annual operating cost for the current process and the annual operating cost for the
alternative process. This difference is the change in annual costs that will result from the
project under consideration. Therefore, it is important to remember that vou do not need to
estimate operating costs that remain the same (e.g. if the project will not affect labor costs, it
is not necessary to estimate and include labor costs for the current and alternative processes).
Operating costs, savings, and revenues are entered into page 4, Operating Costs. Cost
categories, such as Direct Materials, Waste Management, Utilities, Direct Labor, Other,
Regulatory Compliance, Insurance, and Revenues are provided to help organize and
summarize data for subsequent financial calculations. The placement of specific cost and
revenue numbers in categories is flexible. As with capital costs, the user may overwrite the
default subcategories shown in yellow (boxed) cells to provide the appropriate detail for the
project.
P2/FINANCE allows you to enter operating cost data in two ways. Use Method 1 if you
choose to enter operating cost and revenue data for both the current and alternative processes.
Method 2 should be used if you choose to enter only incremental (i.e. an increase or decrease
in) costs, savings, and revenues for the alternative process over the current process.
Method 1: Entering operating costs, savings, and revenues for both the current and
alternative processes.
Note: Costs (cash outflows) should be entered as positive values and savings/revenues
(cash inflows) should be entered as negative values. Negative values should be
entered with a minus sign.
Starting with the Direct Materials category, enter a brief description of the raw
materials and supplies used in the Current Process in the Item column and enter their
corresponding annual costs in the Annual Cost column. Do the same for all other
Current Process and Alternative Process cost categories on page 4.
If revenue will be affected by the project because of an expected increase or decrease
in sales, product price (i.e. market value), production rate, or production of a
marketable by-product, enter revenue for the current process and alternative process in
the Revenues - Sale of Product and Revenues - Marketable By-products categories at
the bottom of page 4. Again, note that revenues must be entered as negative numbers.
P2/FOMNCE automatically will total the operating costs for the current and
alternative processes and report the Total columns, subtract the category totals of
the alternative process from the current process and report the difference in the
right-most column of page 4. which is entitled Difference = (Our.-Alt.).
Method 2: Entering incremental operating costs, savings, and revenues for the
alternative practice only.
Using Method 2, you will enter numbers only in the Alternative Process Annual Cost
column
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values: savings and revenue increases (cash inflows) should be entered as
negative values. Negative values should be entered with a minus sign.
In the Annual Cost column for the Alternative Process, enter estimates of the change
in annual costs or savings in each category, remembering that costs/revenue decreases
for the alternative system should be entered as positive numbers and savings/revenue
increases should be entered as negative numbers.
If revenue will be affected by the project, either because of an expected increase or
decrease in sales, product price (i.e. market value), production rate, or production of a
marketable by-product, enter revenue increases or decreases for the alternative process
in the Revenues - Sale of Product and Revenues - Marketable By-products entries at
the bottom of page 4.
P2/FINANCE automatically will total the operating costs for the current process
(all zeroes or blanks using Method 2) and the alternative process (the incremental
changes entered by the user) and then subtract the category totals of the alternative
process from the current process and report the difference in the right-most column
of page 4, which is entitled Difference = (Our.-Alt.).
Step 4 - Reviewing Capital and Operating Costs. Entering Financial Parameters, and Future
Liability Estimates Window 4, Spreadsheet Page 5
The Capital and Operating Cost Summary has three functions: 1) to summarize and report
capital and operating cost data, 2) to accept financial parameters for use in the financial
calculations on pages 6 through 8, and 3) to accept estimates of avoided future liability
attributable to the pollution prevention project.
On page 5, user entries are denoted by yellow (boxed) cells containing default values.
Numbers that are automatically reported by the system are not in yellow (boxed) cells. Enter
numbers in the yellow (boxed) data entry cells, replacing the default values from the blank
spreadsheet.
Step 4a - Reviewing Capital Cost Data On page 5 of the spreadsheet, you will see that
the left-hand side of the page contains capital cost data. Begin by reviewing the capital
cost summary (Purchased Equipment through Salvage Value) taken from costs entered
on pages 2 and 3 of P2/FINANCE If these numbers appear incorrect, recheck the
numbers that you entered on pages 2 and 3.
Step 4b - Entering Capital Cost Financial Parameters Equity, % and Debt, %. If the
capital cost of the project will be entirely funded by equity, then enter a 1.0 in the $
column of the Equity, % row to represent 100%.
Note: Entries reported by P2/FTNANCE as % (e.g. Equity, %) must be entered as a
decimal number. For example, if equity financing is 50%, then you must enter
the number as 0.5 (not SO), enter 1.0 for 100%, and so on.
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If the capital cost will be completely debt-financed (i.e. through loans) enter 0 in the $
column in the Equity, % row. If the project will be funded by a mix of equity and debt,
enter the cell a decimal number which corresponds to the percent funded by equity.
P2/FINANCE automatically will enter a number in the $ column of the Debt, %
row which is the % debt incurred for the project based on the Equity, %, value you
entered.
If the project will be wholly or partially financed by debt, you must enter a decimal
numbers in the $ column adjacent to Interest Rate on Debt, % and Debt Repayment,
years. If there will be no debt financing, leave the default values from, the blank
spreadsheet in these two boxes. Do not replace the default value for Debt Repayment.
years with zeroes or blanks, as this will cause error symbols (#NUM! or #DIV/0!, etc.)
to appear in some cells on pages 6 through 8. Leaving the default values will not affect
any calculations performed by P2/FINANCE in cases where no debt financing is used.
P2/FINANCE automatically will calculate and report, in dollars, Equity
Investment, Debt Principal, Interest on Debt, and Total Financing in the
corresponding cells of the $ column.
Depreciation Period, years and Operating Period, years. Enter the depreciation period
for the investment and the operating period for the process into the corresponding cells
in the $ column. The Operating Period, years is used only to determine when Working
Capital is cashed out; Working Capital is cashed out during the final operating year.
Income Tax Rate, %. Enter a corporate income tax rate as a decimal number into the
cell in the $ column of the Income Tax Rate, % row. P2/FINANCE accepts only one tax
rate for the analysis, and applies this rate to all taxable income (i.e. savings) for the
project. You may combine federal and state income tax rates into a single tax rate if
appropriate
Escalation Rate, % The escalation, or inflation rate, will be used to inflate operating
costs, working capital, and future liability estimates over the project lifetime.
P2/FINANCE accepts only one inflation rate which is used for all annually recurring
costs and savings Enter the escalation rate as a decimal number in the $ column in
the boxed cell below Income Tax Rate, %
Cost of Capital, % Cost of capital, or discount rate, is used to calculate discounted
cash flow and Net Present Value Enter a decimal number in the corresponding cell in
the $ column.
Step 4c - Reviewing Operating Cost Data The right-hand section of page 5 contains
operating cost data for the project Notice that operating costs are summarized and
reported by category. Direct Materials through Insurance, Revenues -Sale of Product
and Revenues - Marketable By-Products. If you used Method 1 to enter operating
costs, then costs will be reported in the Current, Alternative, and Difference columns.
If you used Method 2, costs will be reported in the Alternative and Difference columns
only.
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This page provides you with the opportunity to add Maintenance, Overhead, and Labor
Burden costs if these items are not already included in the operating cost estimates
entered on Page 4. Most of these numbers are calculated by P2/FINANCE as a
percentage of Capital costs or as a percentage of Total Labor costs, with the
percentages entered by the user. If you choose to add these costs, enter one or more
decimal values in the appropriate yellow (boxed) cell. If you choose not to add these
costs on this page, be sure to enter zeroes for the percentage values in the cells. For
Current Maintenance costs, the costs are not calculated as percentage of Capital, and
should be entered directly into the yellow (boxed) cells in the Current column of the
Labor, % and Materials, % rows.
P2/FINANCE automatically will calculate and enter dollar estimates for
Maintenance, in the Alternative, and Difference columns. For Overhead, and
Labor Burden, P2/F7NANCE will automatically calculate and enter the values in
the Current, Alternative, and Difference columns. P2/FINANCE will then
determine the Total recurring annual cost for the current process, the alternative
process, and the difference between the two. The difference represents the annual
savings or cost for the project.
Step 4d - Entering Estimates of Avoided Future Liability Costs By implementing a
pollution prevention project, you may avoid future liability costs associated with fines
and penalties, personal injury, or property damage. These are costs over and above
those covered by insurance policies. You may include avoided liability estimates for up
to 4 different years of the investment, by entering the year (i.e. year 1, year 2) in which
you might expect the liability cost to be incurred in the Year Expected column and the
corresponding avoided liability estimates in the Cost (Curr.-Alt.) column. The liability
estimates entered should be in current (year zero) dollars as they will be automatically
adjusted for inflation for the year in which they occur. A space for documentation
reference numbers is provided in the Ref. column.
Note: Avoided liability cost estimates should be entered as positive values.
If, for example, the company has incurred a fine of $25,000 once every four years for
an exceedance of an effluent standard and you expect that the pollution prevention
project will eliminate these fines, you may enter $25,000 for years 4, 8, and 12 of the
investment. Or if the pollution prevention project will eliminate a wastestream, and
you estimate that the wastestream could cause a liability of $500,000 in year 10 of the
investment for remedial work at a disposal site, you may enter the 10 and $500,000 into
the cells the first row of the Year Expected and Cost (Curr.-Alt.) columns, respectively.
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Steo 5 -Reviewing the Cash Flows/Profitability Analysis of the Project Window 5, Spreadsheet
Pages 6-8 and Window 6, Spreadsheet Page 9
Pages 6,7 and 8 calculate and report the cash flows of the project. The cash flow analysis is
carried out over a IS year period following the initial investment. Cash flow for years 1-5 is
reported on page 6, years 6-10 on page 7, and years 11-15 on page 8.
Note: As discussed in Step 2, it is possible to include an avoided capital cost estimate into the
analysis. This cost must be entered directly into,the report pn-page 6,7or 8. Simply
enter the estimate, as a negative number, into the Investment row of the Capital
Costs($) section in the column of the Operating Year hi which you would have
expected the cost to be incurred (i.e. 0-15). If the cost estimate is in current year (i.e.
today's)-dollars,'multiply°the estimate'by the~Escalatibn Fact oF (top ~of page,~under
Operating Year) for that year before entering the number. For example, if you expect
to avoid $150,000 (current year dollars) in capital expenditures in the fourth year after
the investment, enter -182400, which was calculated from -150,000* 1.216, in the
Investment row of the Operating Year 4 column.
A Profitability Analysis Summary is contained on page 9. It lists financial indicators of the
investment including:
Net Present Value (NPV)
Years 1-5
Years 1-10
Years 1-15
Year 1-Year of Choice
Internal Rate of Return (IRK)
Years 1-5
Years 1-10
Years 1-15
Year 1-Year of Choice
Simple Payback
In order to calculate the financial indicators for your Year of Choice, it is necessary to enter
the selected year in the small yellow (boxed) user entry cell, which is inside the summary box
at the bottom of page 9.
P2/FINANCE automatically will calculate and report, in dollars, Net Present Value
(NPV), Internal Kate of Return (DtR), and Simple Payback for your Year of
Choice in the designated cells in the table.
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14
Step 6 - Printing a Report
A print macro file is provided on the P2/F1NANCE diskette to simplify the printing of pages 1-
9 of the report. To print the desired page(s) press the Ctrl key along with the corresponding
letter from the list below:
a Title Page, page 1
b Capital Costs, pages. 2 and 3
c Operating Costs, page 4
d Cost Summary, page 5
e Cash Flows, pages 6-8
f Profitability Analysis, page 9
g All pages (1-9)
The report will be printed in black and white using a Helvetica 8 point font. Boxes which
appear yellow on a color screen will be appear white and boxed on the printed report. This
print macro can be used to print any spreadsheet file which uses the P2/FINANCE template,
regardless of the spreadsheet filename. If multiple spreadsheets are open simultaneously, the
macro will automatically print the active spreadsheet file, i.e. the spreadsheet file in which the
user is working. Experienced Excel users can set their own print areas and use the "Print"
option from the "File" pull-down menu instead of using the print macro, if desired.
5.4 Saving and closing the spreadsheet
When saving the file, Excel will renumber each of the six spreadsheet windows in the most
recent order in which it was accessed. For example, if P2FINAN.XLS:2 (window 2, pages 2
and 3) was the last (i.e. the sixth) window accessed before closing the file, upon opening, it will
be P2FINAN.XLS:6, although it will still appear at the lower left of the monitor screen and
still contain pages 2 and 3. To prevent confusing renumbering of the windows, click on each
window in order from 1 to 6 before saving and closing the file.
-------
15
APPENDIX A
LIST OF POTENTIAL COSTS
-------
16
LIST OF POTENTIAL COSTS
CAPITAL COSTS
P2FINANCE List
Additional Kerns/Examples
Purchased Equipment
Equipment
Delivery
Sales tax
Price for Initial Spare Parts
Materials
Piping
Electrical
Instruments
Structural
Insulation
Utility Connections and New Utility Systems
Electricity
Steam
Water
Sewerage
Refrigeration
Fuel
Plant Air
Inert Gas
Site Preparation
Demolition and Clearing
Old Equipment/Rubbish Disposal
Construction/Installation
In-house
Contractor
Vendor
Engineering/Contractor
In-house Planning
In-house Engineering
Procurement
Contractor/Consultant
Start-up/Training
In-house
Vendor/Contractor
Trials/Manufacturing Variances
Training
Process Equipment
Monitoring Equipment
Preparedness/Protective Equipment
Safety Equipment
Storage & Materials Handling Equipment
Laboratory/Analytical Equipment
Insurance
Building Construction Matenals
Painting Materials
Ducting Matenals
General Plumbing
Cooling Water
Process Water
Gas Connection
Oil Connection
Walkways roads, and fencing
Grading, Landscaping
Labor
Supervision
Taxes
Insurance
Equipment Rental
Design
Drafting
Accounting
Supervision
Contingency
-------
17
LIST OF POTENTIAL COSTS
CAPITAL COSTS
P2FINANCE List Additional Items/Examples
Permitting
Fees Labor
In-house Supervision
Contractor/Consultant Environmental Impact Studies
Initial Charge for Catalysts and Chemicals
Working Capital
Raw Materials
Materials and Supplies
Product Inventory
Salvage Value
-------
j.8
UST OF POTENTIAL COSTS
OPERATING COSTS
P2FINANCE List
Direct Materials
waste Management (Materials & Labor)
Pre-Treatment
On-site Handling
Storage
Treatment
Hauling
Insurance
Disposal
Utilities
Electricity
Steam
Water
Sewerage
Direct Labor
Other
Additional Items/Examples
Raw Materials
Catalysts and Solvents
Wasted Raw Materials Costs
Transport
Storage
Water (Cooling or Process)
Refrigeration
Fuel (Gas or Oil)
Plant Air and Inert Gas
Operating Labor/Supervision
Manufacturing Clerical Labor
Inspection (QA/QC)
Worker Productivity Changes
Miscellaneous Indirect Labor
Maintenance (Materials & Labor)
Medical Surveillance
Regulatory Compliance (Materials & Labor)
Manifesting
Reporting
Monitoring
Testing
Labeling
Permitting
Training
Insurance
Revenues
Sale of Product
Marketable By-products
Future Liability
Re-permitting
Right-to-Know Training
Recordkeepmg
Inspection
Closure/Postdosure Care
Generator Fees/Taxes
Manufacturing Throughput Change
Change in Sales from:
Market Share
Corporate Image
Fines/Penalties
Personal Injury
Real Property Damage
Natural Resource Damage
-------
APPENDIX B
BLANK SPREADSHEET
-------
20
Date: 10/25/93 Page 1
PROJECT TITLE: Blank Spreadsheet
PREPARED BY:
ORGANIZATION:
COMMENTS:
P2/FINANCE
Pollution Prevention Financial Analysis
and Cost Evaluation System
Version 2.0
Copyright 1993
Tellus Institute
Boston, MA
-------
PROJECT TITLE: CAPITAL COSTS Date. 10/25/93
Blank Spreadsheet
A boxed cell contains user Input 11
Capital Costs Cost Totals |Ref Notes
Pi
Mi
Ut
Sit
Co
En
Page 2
irchased Equipment
Delivery
Sales tax
Price for Initial Spare Parts
0
iterials
Piping
Electrical
Instruments
Structural
Insulation
0
Illty Connections and New Utility Systems
Electricity
Steam
Water
Sewerage
Refrigeration
Fuel
Plant Air
Inert Gas
0
e Preparation
Demolition and Clearing
Old Equipment/Rubbish Disposal
0
nstruction/lnstallation
In-house
Contractor
Vendor
0
gineering/Contractor
In-house Planning
In-house Engineering
Procurement
Contractor/Consultant
0
-------
22
PROJECT TITLE: CAPITAL COSTS Date- 10/25/93
Blank Spreadsheet
A boxed cell contains user Input ~]l
-
Capital Costs Cost Totals
St
C<
PC
Inl
W
Sa
art-up/Tralning
In-house
Vendor/Contractor
Trials/Manufacturing Variances
Training
>ntingency
-
0
Ref.
Notes!
Page 3
.
ol
rmlttlng
Fees
In-house
Contractor/Consultant
tlal Charge for Catalysts and Chemicals
orking Capital
Raw Materials
Materials and Supplies
Product Inventory
0
0
0
f
Ivage Value
0
-------
23
PROJECT TITLE:
Blank Spreadsheet
A boxed cell contains user input |
Enter costs as positive values; Enter savings/raven
CURRENT PROCESS
Annual Cost
Item ($/year) Total
Direct Materials
0
Waste Management (materials & labor)
Pre-treatment
Dn-site Handling
Storage
Treatment
Hauling
Insurance
disposal
Utilities
Electricity
Steam
Water
Sewerage
Direct Labor
Other
0
0
0
0
Regulatory Compliance (materials & labor)
Manifesting
Reporting
Monitoring
Testing
Labeling
Permitting
Training
Insurance
Revenues - Sale of Product
Revenues - Marketable By-products
0
0
0
0
Total 0
OPERATING COSTS
ues as negative values
ALTERNATIVE PROCESS
Annual Cost
Item (S/year) Total
Direct Materials
0
Waste Management (materials & labor)
Pre-treatment
3n-srte Handling
Storage
Treatment
Hauling
Insurance
Disposal
Utilities
Electricity
Steam
Water
Sewerage
Direct Labor
Other
Regulatory Compliance (materials &
Manifesting
Reporting
Monitoring
Testing
Labehng
Permitting
Training
Insurance
Revenues - Sale of Product
Revenues - Marketable By-products
0
0
0
0
labor)
0
0
0
0
Total 0
Date- 10/25/93
Page 4
Difference
(Curr.-Alt)
0
0
0
0
0
0
0
0
0
0
-------
24
PROJECT TITLE:
Blank Spreadsheet
Date: 10/25/93
Pages
CAPITAL AND OPERATING COST SUMMARY
NOTE: on this page, boied
ccD contains user inpnt - default
value* are for illustration only.
Capital Costs
Purchased Equipment
Materials
Utility Connections
Site Preparation
Installation
Engineering/Contractor
Start-up/Training
Contingency
Permitting
Initial Catalysts/Chemicals
Depreciable Capital
Working Capital
Subtotal
Debt Interest (Installation)
Total Capital Requirement
Salvage Value
Equity. %
Debt. %
Interest Rate on Debt. %
Debt Repayment, years
Equity Investment
Debt Principal
Interest on Debt
Total Financing
Depreciation Period, years
Operating Period, years
Income Tax Rate. %
Escalation Rate, %
Cost of Capital, %
(Discount Rate)
$
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
b
100%
0%
12%
5
0
0
0
0
7
15
39%
50%
1500%
INO 1 1: all entries shown as percentages
must be entered as decimal numbers
EXAMPLE: enter 0.4 for 40%
Difference
Operating Costs Current. Alternative (Curr.-Alt)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance. % Capital
Labor. % 3%
Materials. % 3%
Overhead, % Total Labor Ho%
Labor Burden H§%
% Total Labor
Revenues - Sale of Product
Revenues - Marketable
By- Products
TOTAL
Future Liability Ref
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Year Expected
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Cost
(Curr -Alt )
(Year expected
=1,2,3,etc)
-------
2b
PROJECT TITLE:
Blank Spreadsheet
Date- 10/25/93
A boxed cell contains user input II
PageG
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 12 0%
Principal Repayment
CASH FLOWS($)
Revenues
+ Operating (Costs)/Savmgs
Operating Cash Flow (BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at 39 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
o 1
1.000 1.050
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Ol I
0 0
0
0
0
0 0
0
0
0
0
0
0
0
0
0
0
0
0
0 0
0 0
0
0 0
0 0
0 0
2
1.103
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
I
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3
1.158
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
I
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Q
0
0
0
0
0
0
0
4
1.216
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
5
1.276
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-------
26
PROJECT TITLE:
Blank Spreadsheet
Date- 10/25/93
A boxed cell contains user Input II
Page 7
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS <$)
Investment |
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DOB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 12 0%
Principal Repayment
CASH FLOWS($)
Revenues
+ Operating (Costs)/Savlngs
Operating Cash Row-(BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at 39 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Pnnciple Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
6
1.340
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
I
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
7
1407
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
I
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
8
1.477
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
I
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
9
1.551
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
10
1.629
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-------
27
PROJECT TITLE:
Blank Spreadsheet
Date- 10/25/93
A boxed cell contains user Incut ll
Pages.
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment |
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 120%
Principal Repayment
CASH FLOWS($)
Revenues
+ Operating (Costs)/Savmgs
Operating Cash Flow (BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at 39 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
11
1.710
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
I
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
12
1.796
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
13
1.886
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
I
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
14
1980
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
I
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
15
2.079
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-------
28
PROJECT TITLE: Page 9
Blank Spreadsheet
PROFITABILITY ANALYSIS SUMMARY
Net Present Value ($)
Internal Rate of Return
Payback (years)
Years 1-5
0
0%
0.0
Years 1-10
0
0%
Years 1-15
0
0%
Year 1-Year of Choice
Year of Choice = |_
Net Present Value ($) 0
Internal Rate of Return 0%
-------
29
APPENDIX C
TCA AT WORK: A CASE STUDY IN THE PULP AND PAPER INDUSTRY
Paper Cp{fl*nff Mill
White Water/Fiber Reuse Project
The following case study illustrates the difference between a company's financial analysis
of a pollution prevention project and a Total Cost Assessment (TCA) of the same-project.
The "Company Analysis" is the financial analysis performed independently by the company
to evaluate the profitability of a pollution prevention project. In contrast, the "TCA" is a
more comprehensive financial analysis of the same project, developed collaboratively by the
company and Tellus, to illustrate the differences in profitability when a more comprehensive
approach is used. This case study describes the project under consideration and assesses
both qualitatively and quantitatively the differences in the Company Analysis vs. the TCA.
-------
30
COATED FINE PAPER MILL
Company Background
A specialty paper mill is part of a larger corporation of pulp, paper, and coating mills.
The mill is not integrated, i.e. does not manufacture pulp. Most of the pulp used by the
mill is purchased via pipeline from a neighboring bleached kraft mill. The mill
supplements this pulp with a small amount of purchased market pulp. The mill produces
approximately 190 tons per year of a variety of uncoated, on-machine and off-machine
coated papers, carbonizing, book, and release base paper. The coating used is a latex
(i.e. non-solvent) formulation containing clay, styrene butadiene, starch, and polymers.
Project Background
Papermachine white water, a mixture of water and residual fiber and filler (clay and
calcium carbonate) that drains out of a sheet of paper as it travels across the paper
machine, is typically captured by a white water collection system dedicated to one
papermachine. Some or all white water is usually recycled back into the paper-making
system to recapture water, fiber and filler. In some cases white water is passed through
a saveall screening device to separate fiber and filler from water; fiber, filler and water
are then recycled back into the system. The saveall produces a clear stream of water
that can be used in numerous papermachine operations.
In this mill, two paper machines, sharing a common white water system, produce a
variety of paper grades made with either acid, neutral, or alkaline sizing chemistry.1
Machine 1 has a saveall system that filters fiber and filler prior to discharging into the
joint white water system. This material is recycled back into the paper-making system.
When the machines are using different sizing chemistry, e.g. when Machine 1 is
producing acid-sized paper and Machine 2 is producing alkaline-sized paper, the mixed
white water from both machines is not reusable, and must be sewered. Under these
conditions, a large flow of potentially reusable water from both'machines, and fiber and
filler from Machine 2, is lost to the sewer.
Prompted primarily by the lack of spare water effluent pumping capacity and a desire to
better understand the rather complex, old white water piping system, the mill
commissioned a study titled "White Water Recycle Feasibility Study." The study had
1 Sizing is added to pulp to reduce water absorbency in the final paper. The pH (i.e.
acidity or alkalinity) of the pulp must be adjusted according to the type of paper desired and
sizing used.
-------
31
several objectives: "...to review the design and operation of the mill and recommend
changes that would help reduce peak effluent flows, reduce BOD in the effluent and
reduce total fresh water intake on a mill wide scale". The resulting report contained
detailed engineering drawings of the fresh water, white water, and paper machine
systems and a recommendation for process modifications.
Project Description
The recommendation made hi the feasibility study was the installation of a second
saveall to handle the Whitewater from Machine 2, and the splitting of the Whitewater
systems so that each machine would have a dedicated system. This would permit fiber,
filler and water reuse on both machines at all tunes, thereby conserving raw materials
and reducing water consumption, wastewater generation, and energy use for fresh and
wastewater pumping and freshwater heating. The project would require installation of a
new saveall, a new pump, piping, and controls. Available pulping and stock storage
capacity could be used to pulp separately for each machine.
Project Financial Analysis
The feasibility study also contained a capital estimate for the project of $1,469,404. The
estimate includes: purchased equipment (including saveall, stock chest, clear white water
chest and associated equipment); process control instrumentation; electrical controls and
lighting; a new building for the saveall; piping; installation (in-house and contracted
labor); engineering; and contingency.
Company and TC A Analyses
The Company Analysis consists of the capital estimate, and only those operating costs
and savings that the- company typically includes in project financial analyses for projects
of this type. These are:
a. raw material - fiber and filler;
b. energy and chemical use for new equipment;
c. wastewater treatment fees; and
d. changes in labor costs.
The TCA contains these and other relevant operating costs and savings. On the benefit
side, the TCA includes the following-
a. An average reduction in fiber and filler loss of 1,200 tons/year, for a
savings of $421,530/year;
-------
32
b. A reduction in fresh water usage of 1 million gal/day, and a commensurate
reduction in cost for fresh water treatment and pumping, for a savings of
approximately $112,420/year;
c. A reduction in energy use for fresh water heating amounting to a savings of
approximately $393,400; and
d. A reduction in wastewater generation of approximately 1 million gal/day,
for a savings of approximately $54,750/year in wastewater pumping and
$68,240/year in wastewater treatment fees.
Annual operating costs are expected to increase in the following areas:
a. Chemical flocculating agents used in the saveall to promote solids/water
separation will cost approximately $28,700/year;
b. Electric costs for new equipment operation will increase operating costs by
approximately $107,280/year; and
c. An increase in labor cost of approximately $3,120/year is expected for
operation of new equipment.
The project does not affect wastestreams that require on-site management or disposal,
nor does it affect any regulatory compliance activities at the site; therefore the financial
analysis does not include costs for these activities. In addition, no impacts on revenue
are expected since neither product quality nor production rates will be improved, nor
does the mill expect to visibly enhance its product or company image. Finally, no
tangible impact on avoided future liability is expected for this project.
Table C-l summarizes the cost categories addressed in the Company Analysis and the
TCA for this project, and Table C-2 reports the results of the financial analysis.
Effect of Cost Inclusion on Financial Indicators
As shown in Table C-2, the inclusion in the TCA Analysis of savings associated with
freshwater pumping, treatment, and heating, and waste water pumping dramatically
increases the annual savings and financial indicators above the Company Analysis base
case. These savings, which would typically not be included in the mill's calculation of
profitability, bring the project in line with the mill's 2 year payback rule-of-thumb. By
excluding these savings in the Company Analysis, the project looks reasonably
"profitable" only over the longer .time horizon of IS years.
-------
33
Table C-l Comparison of Cost Items in Company and TC A Cost Analyses
X = Cost(s) Included
P = Cost(s) Partially Included Company TCA
Capital Costs
Purchased Equipment X X
Materials
-------
34
Some uncertainty exists in the wastewater treatment cost estimate. Because the mill
does not have its own wastewater treatment facility, wastewater from the mill is pumped
to a neighboring mill for treatment. In the per ton flow, Total Suspended Solids (TSS)
and Biological Oxygen Demand (BOD) for the subject mill is reportedly higher than the
industry average. The neighboring mill has asked the subject mill to reduce wastewater
flow, although no such measures have been put into effect to date. The treatment
charge is not based on TSS or BOD so the subject mill has no direct economic incentive
to reduce TSS and BOD in its wastewater. The contract between the mills establishes a
ceiling for wastewater flow, BOD and TSS from the mill Currently, the subject mill is
meeting its flow limit, but is substantially exceeding its contract limits on BOD and TSS.
The treatment contract will be renegotiated in 1993, but it is not clear whether, or how,
the terms will be changed. However, the mill's environmental engineer speculated that
the charge rate formula might be changed to include a BOD or TSS variable, and that
the overall cost could increase. To test the sensitivity of the project analysis to these
potential changes, the TCA was recalculated twice, doubling and tripling the wastewater
treatment costs. In both cases, the financial indicators change slightly: 50% IRR (years
1-10) and 1.5 payback for double the cost, and 53% (years 1-10) IRR and 1.4 payback
for triple the treatment -cost. While there is no dramatic change in projected
profitability, a tripling of wastewater treatment costs, may make this project somewhat
more competitive with other projects competing for capital hi a particular budget year.
This may be especially true if the firm applies its rule-of-thumb, 2 year payback criteria
as a screening test for the project.
Detailed reports of the Company Analysis, the TCA, and associated cost calculation
documentation follow.
-------
White Water/Fiber Reuse Project
Costing and Financial Analysis Documentation
A. Capital Costs'
Purchased Equipment: $345,985
Saveall and White Water Pump
Materials: $374,822'
Piping, Electrical, Instruments and Structural
Installation:
Engineering:
Contingency:
$397,148
$211,046
$140,403
B. Operating Costs
Key: M - thousand
MM - million
CD - gallons/day
Current Process
1. RAW MATERIALS
l.a. Fiber and Filler Loss (includes freight)
Estimated solids loss = l,500tons/yr
White water solids =67% fiber, 33% filler
Fiber loss:
l,500tons/yr * 0.67 = 1005tons/yr
Fiber cost = $445/ton
Lost fiber cost = 1005 tons/yr * $445/ton =
$447,220/year
Filler loss:
1,500tons/yr * 0.33 = 495 tons/yr
Filler cost = Sl61/ton
Lost filler cost = 495 tons/yr * $161/ton =
$79,700/year
White Water and Fiber Reuse
l.b. Fiber and Filler Loss (includes freight)
Estimated recoverable solids = 1,200 tons/year
Estimated solids loss = 1,500- 1,200 = 300 tons/yr
Fiber loss:
300 tons/yr * 0.67 = 201 tons/yr
Fiber cost = $445/ton
Lost fiber cost =201 tons/yr * $445/t'on =
$89,450/year
Filler loss:
300 tons/yr * 0.33 = 99 tons/yr
Filler cost = $161 /ton
Lost filler cost = 99 tons/yr * $161/ton =
$15,940/year
-------
36
Current Process
1. RAW MATERIALS (cent.)
l.c. Fresh water Treatment
AnmiaiiraH freshwater use = l.SMMGD
Chemical Costs:
S/MG
Alum 0.02S
Sodium aluminate 0.009
Polymer 0.034
Sodium hypochlorite 0.003
Total $0.071
1.5MMGD * 365 days/yr *($0.07I*1000)/MMG -
$38,870/year
White Water and Fiber Reuse
l.d.Freshwater Treatment
O.SMMGD freshwater > = $12,960
I.e. Flocculating Agents for Saveall
Avg. white water flow through saveall = 600 GPM
(864 MGD)
Chemical Costs:
Cationic polymer cost = $0.056/Mgal
Anionic polymer cost = S0.03S/Meal
total $0.091/Mgal
864MGD i- S0.091/Mgal * 365 days/yr =
$28,700/year
2. UnLITIES
2.a. Freshwater Pumping
Annualized freshwater use = l.SMMGD
. 2.b. Freshwater Pumping
O.SMMGD freshwater > = $43,250/year
Energy Costs:
S/period' S/MG
Variable freshwater pumping 133,098 0.234
Miscellaneous 1.479 0.0026
Total $134,577 $0.237
period = 8 months, 1990
total freshwater use = 566.460MG
l.SMMGD * 365 days/yr * ($0.237*1000)/MMG =
$129,760/year
-------
37
Current Process
2.UnLrnES(cont.)
2.c. Freshwater Heating
l.SMMGD freshwater comes in at 57°F, must be
raised to 9S°F
1.5MMGD * 1 Btu/lb°F * 8.41b/gal * (95 - 57°F)
- 4.788x 10'Btu/day
Fuel cost (No. 6) = S0.39/gal
Estimated boiler efficiency = 82.5%
4.788x 10s Btu/day * 1 gal No. 6 fuel/1.4 x 10s Btu
* $0:39/gal * 1/0.825 * 365 days/yr = $590,100/yr
White Water and Fiber Reuse
2.d. Freshwater Heating
0.5MMGD freshwater > = $196,700/yr
2.e. Wastewater Pumping
4.0MMGD * 365 days/yr * S150/MMGD
$219,000/yr
2.f. Wastewater Pumping
3.0MMGD > = $164,250/yr
2.g. Wastewater Treatment
Average, annualized wastewater discharge rate =
4.0MMGD
Wastewater treatment cost = S187/MMG
4.0MMGD * 365 days/yr * S187/MMG =
$273,020/yr
2.h. Wastewater Treatment
3.0MMGD >= $204,760/yr
2.i. Energy for Equipment Operation
Electricity cost = S0.08/kWh
New Equipment HP
Drive Pump 1
Scoop Pump 1
Pressure Pump 40
Feed Pump 20
Recovered Stock Chest Agitator Motor 5
Recovered Stock Chest Pump 25
Clear White Water Chest Pump 125
White Water Surge Pump 125
Total 342 HP
342 HP * 0.6* 0.746kWh/HP * 8,760hr/yr *
S0.08/kWh = $107,280
-------
38
Current Process
3. LABOR
White Water and Fiber Reuse
3.a. Equipment Operation - Saveall
4 hours/week labor
$15/hour - fully loaded wage rate
4 hrs/week * 52 weeks/yr * SlS/hr = $3,120/yr
-------
39
COMPANY ANALYSIS
WHITE WATER/FIBER REUSE PROJECT
-------
Date: 1/1/93 Page 1
PROJECT TITLE: WW/FIBER (Company Analysis)
PREPARED BY: Risk Analysis Group
ORGANIZATION: Tellus Institute
COMMENTS: This spreadsheet incorporates the data from the company's original financial
analysis of the whitewater/fiber recycle project
P2/FINANCE
Pollution Prevention Financial Analysis
and Cost Evaluation System
Version 2.0
Copyright 1993
Tellus Institute
Boston, MA
-------
PROJECT TITLE: CAPITAL COSTS Date: 1/1/93
WW/FIBER (Company Analysis)
A boxed cell contains user Input ||
Capital Costs Cost Totals |Ref (Notes
Pi
M.
Ut
Si
Cc
En
Page 2
irchased Equipment
Equipment - Phase 1
Equipment - Phase II
Delivery
Sales tax
Price for Initial Spare Parts
iterlals
Piping
Electrical
Instruments
Structural
Insulation
330,853
15.132
345,985
183.690
67.721
68.465
54,946
374,822
Saveall and associated pumps & tanks
White water pump
Illty Connections and New Utility Systems
Electricity
Steam
Water
Sewerage
Refrigeration
Fuel
Plant Air
Inert Gas
te Preparation
Demolition and Clearing
Old Equipment/Rubbish Disposal
0
0
instruction/Installation
In-house
Contractor
Vendor
397.148
397,148
glneering/Contractor
In-house Planning
In-house Engineering
Procurement
Contractor/Consultant
166.946
44.100
211,046
-------
42
PROJECT TITLE: CAPITAL
WW/FIBER (Company Analysis)
A boxed cell contains user input ||
COSTS Date 1/1/93
Capital Costs Cost Totals
St
C(
PC
In
W
Sa
art-up/Tralning
In-house
Vendor/Contractor
Trials/Manufacturing Variances
Training
0
Ref (Notes'
Page 3
>ntlngency
emitting
Fees
In-house
Contractor/Consultant
140.4031 140,4031 |10% of materials, labor, & engineering
0
tial Charge for Catalysts and Chemicals
orking Capital
Raw Materials
Materials and Supplies
Product Inventory
Ivage Value
0
0
0
-------
PROJECT TITLE:
WW/FIBER (Company Analysis)
A boxed cell contains user input ~|
Enter costs as positive values; Enter savings/raven
CURRENT PROCESS
Annual Cost
Item (S/year) Total
Direct Materials
Fiber Loss (+ transport)
Filler Loss (+ transport)
447.220
79.700
526,920
Waste Management (materials ft labor)
Pre-treatment
On-site Handling
Storage
Treatment
Hauling
Insurance
Disposal
Utilities
Electricity
Steam
Water
Sewerage
273,020
Direct Labor
Other
Regulatory Compliance (matenals ft
Manifesting
Reporting
Monitoring
Testing
.abelmg
Permitting
Training
Insurance
Revenues - Sale of Product
Revenues - Marketable By-products
0
273,020
0
0
labor)
0
0
0
0
Total 799.940
OPERATING COSTS
ues as negative values
ALTERNATIVE PROCESS
Annual Cost
Item ($/year) Total
Direct Materials
Fiber Loss (+ transport)
Filler Loss (+ transport)
Flocculating Agents
89.450
15.940
28.700
134,090
Waste Management (materials & labor)
Pre-treatment
On-site Handling
Storage
Treatment
Haunna
Insjrance
Disposal
Utilities
Electricity
Steam
Water
Sewerage
107.280
204,760
Direct Labor
Equipment Operation
3.120
Other
0
312,040
3.120
0
Regulatory Compliance (materials ft labor)
Manifesting
Reporting
Wlomtonng
Testing
Labeling
Permitting
Training
Insurance
Revenues - Sale of Product
Revenues - Marketable By-products
0
0
0
0
Total 449,250
Date 1/1/93
Page 4
Difference
"(Curr.-AK.)
392,830
0
-39,020
-3,120
0
0
0
0
0
350,690
-------
PROJECT TITLE:
vWWFIBER (Company Analysis)
Date: 1/1/93
PageS
CAPITAL AND OPERATING COST SUMMARY
NOTE: on this page, a boxed
cell contains user Input - default
values are for Illustration only.
Capital Costs
Purchased Equipment
Materials
Utility Connections
Site Preparation
Installation
Engineering/Contractor
Start-up/Training
Contingency
Permitting
Initial Catalysts/Chemicals
Depreciable Capital
Working Capital
Subtotal
Debt Interest (Installation)
Total Capital Requirement
Salvage Value
Equity, %
Debt, %
Interest Rate on Debt. %
Debt Repayment, years
Equity Investment
Debt Principal
Interest on Debt
Total Financing
Depreciation Penod, years
Operating Penod. years
Income Tax Rate. %
Escalation Rate. %
Cost of Capital, %
(Discount Rate)
S
345.985
374,822
0
0
397,148
211.046
0
140.403
0
0
1.469.404
0
1,469.404
0
1.469,404
0
100%
0%
12%
5
1.469.404
0
0
1.469.404
15
15
40%
50%
16 00%
II NOTE: all entries shown as percentages
must be entered as decimal numbers
II EXAMPLE: enter 0.4 for 40%
Operating Costs
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance, % Capital
Labor. %
Materials. %
Overhead. % Total Labor
Labor Burden
% Total Labor
Revenues - Sale of Produ
Revenues - Marketable
By-Products
TOTAL
Future Liability
(Year expected
=1,2,3,etc)
Difference
Current . Alternative (Curr.-Alt)
0%
0%
~0%
~0%
ct
Ref
526.920
0
273.020
0
0
0
0
0
0
0
0
0
0
799,940
Year Expected
134.090
0
312,040
3.120
0
0
0
0
0
0
0
0
0
449,250
392.830
0
-39.020
-3.120
0
0
0
0
0
0
0
0
0
350,690
Cost
(Curr-Alt)
-------
PROJECT TITLE:
WW/FIBER (Company Analysis)
Date: 1/1/93
A boxed cell contains user Input l[
Page 6
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue- Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 12 0%
Principal Repayment
CASH FLOWS($)
Revenues
+ Operating (Costs)/Savings
Operating Cash Flow (BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at 40 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
0 1
1.000 1.050
0
0
0
412.472
0
-40.971
-3.276
0
0
0
0
0
0
0
368.225
1,469.4041 |
1.469.404 1.273.483
97.960
195.921
195.921
0 0
0
0
0
368.225
368.225
195.921
0
172.304
68.922
103.382
195.921
0
1.469,404 0
0 0
0
-1.469.404 299.303
-1.469.404 -1.170.101
-1.469.404 258.020
2
1.103
0
0
0
433.095
0
43.020
-3.440
0
0
0
0
0
0
0
386.636
1
1.103,686
97.960
169.798
169.798
0
0
0
0
386.636
386.636
169.798
0
216.838
86.735
130.103
169.798
0
0
0
0
299.901
-870.201
222.875
3
1.158
0
0
0
454,750
0
-45,171
-3.612
0
0
0
0
0
0
0
495.968
I
956,528
97,960
147,158
147.158
0
0
0
0
405,968
405,968
147,158
0
258,809
103,524
155,286
147.158
0
0
0
0
302,444
-567,757
193.763
4
1.216
0
0
0
477.487
0
-47.429
-3.792
0
0
0
0
0
0
0
426.266
I
828.991
97.960
127.537
127.537
0
0
0
0
426.266
426,266.
127.537
0
298.729
119.492
179.237
127.537
0
0
0
0
306.774
-260.982
169.429
C
1.276
0
0
0
501.362
0
-49,801
-3.982
0
0
0
0
0
0
0
447.579
718.458
97.960
110.532
110.532
0
0
0
0
447.579
447.579
110.532
0
337.047
134.819
202.228
110.532
0
0
0
0
312.760
51.778
148.909
-------
4b
PROJECT TITLE:
WW/FIBER (Company Analysis)
Date- 1/1/93
A boxed cell contains user Input II
Page?
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment |
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 12 0%
Principal Repayment
CASH FLOWS(S)
Revenues
+ Operating (Costs)/Savmgs
Operating Cash Flow .(BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at 40 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
6
1.340
0
0
0
526.430
0
-52.291
-4.181
0
0
0
0
0
0
0
' 469.958
1
646.613
97.960
95.794
71.846
0
0
0
0
469.958
469.958
71.846
0
398.112
159.245
238.867
71,846
0
0
0
0
310.713
362.491
127.530
7
1.407
0
0
0
552.751
0
-54.905
-4.390
0
0
0
0
0
0
0
493,456
1
574.767
97.960
86.215
71.846
0
0
0
0
493.456
493.456
71.846
0
421.610
168.644
252.966
71.846
0
0
0
0
324,812
687.303
114.928
8
1.477
0
0
0
580.389
0
-57.650
-4.610
0
0
0
0
0
0
0
518,129
I
502.921
97.960
76.636
71.846
0
0
0
0
518,129
518.129
71.846
0
446.283
178.513
267.770
71.846
0
0
0
0
339.616
1.026.919
103.591
9
1.551
0
0
0
609.408
0
-60.533
-4.840
0
0
0
0
0
0
0
544,035
I
431,075
97.960
67.056
71.846
0
0
0
0
544,035
544,035
71,846
0
472.189
188.876
283.314
71.846
0
0
0
0
355.160
1.382,078
93.390
10
1.629
0
0
0
639.879
0
63.559
-5.082
0
0
0
0
0
0
0
571.237
359.229
97,960
57.477
71.846
0
0
0
0
571,237
571,237
71,846
0
499.391
199.756
299.635
71,846
0
0
0
0
371,481
1,753,559
84.209
-------
PROJECT TITLE:
VWWFIBER (Company Analysis)
Date- 1/1/93
A boxed cell contains user Input ll
Pages
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment |
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 1 2 0%
Principal Repayment
CASH FLOWS($)
Revenues
+ Operating
-------
48
PROJECT TITLE: Page9
WW/FIBER (Company Analysis)
PROFITABILITY ANALYSIS SUMMARY
Years 1-5 Years 1-10 Years 1-15
Net Present Value ($) -476,408 47,240 359,544
Internal Rate of Return 1% 17% 21%
Payback (years) 4.2
Year 1-Year of Choice
Year of Choice = [
Net Present Value ($) -233,950
Internal Rate of Return 10%
-------
45
TOTAL COST ASSESSMENT-METHOD 1
WHITE WATER/FIBER REUSE PROJECT
-------
Date: 1/1/93 Page 1
PROJECT TITLE: WW/FIBER (Total Cost Assessment, Method 1)
PREPARED BY: Risk Analysis Group
ORGANIZATION: Tellus Institute
COMMENTS: This spreadsheet incorporates the data from a Total Cost Assessment of the
Whitewater/fiber recycle project.
Method 1 was used for entering the TCA data, i.e. operating costs
and revenues were entered for both the current and alternative processes.
P2/FINANCE
Pollution Prevention Financial Analysis
and Cost Evaluation System
Version 2.0
Copyright 1993
Tellus Institute
Boston, MA
-------
PROJECT TITLE: CAPITAL COSTS Date 1/1/93
WW/FIBER (Total Cost Assessment)
A boxed cell contains user Input ||
Capital Costs Cost Totals Ref Notes
Pi
M
Ut
Si
Cc
Er
Page 2
irchased Equipment
Equipment - Phase 1
Equipment - Phase II
Delivery
Sales tax
Price for Initial Spare Parts
iterials
Piping
Electrical
Instruments
Structural
Insulation
330.853
15,132
183.690
67,721
68.465
54,946
345,985
374,822
Saveall and associated pumps & tanks
White water pump
illty Connections and New Utility Systems
Electncity
Steam
Water
Sewerage
Refrigeration
Fuel
Plant Air
Inert Gas
te Preparation
Demolition and Clearing
Old Equipment/Rubbish Disposal
instruction/Installation
In-house
Contractor
Vendor
397 148
0
0
397.148
glnee ring/Contractor
In-house Planning
In-house Engineering
Procurement
Contractor/Consultant
166946
44100
211.046
-------
PROJECT TITLE:
WVWFIBER (Total Cost Assessment)
A boxed cell contains user Input
CAPITAL COSTS Date: 1/1/93
1
Capital Costs ' Cost Totals IRef.
St
c<
Pe
In
W
Sa
art-up/Tralnlng
In-house
Vendor/Contractor
Trials/Manufacturing Vananoes
Training -
0
Notes*
Pages
.
"
mtingency
140.4031 140.4031 |10%of materials, labor. & engineering
emitting
Fees
In-house
Contractor/Consultant
tlal Charge for Catalysts and Chemicals
orking Capital
Raw Materials
Materials and Supplies
Product Inventory
Ivage Value
0
0
0
0
*
-
-------
PROJECT TITLE:
WW/FIBER (Total Cost Assessment)
A boxed cell contains user Input ]
OPERATING COSTS
Enter costs as positive values; Enter savings/revenues as negative values
CURRENT PROCESS
Annual Cost
Item (S/year) Total
Direct Materials
Fiber Loss (+ transport)
Filler Loss 1+ transport)
Water Treatment Chems
447,220
79.700
38.B70
565,790
Waste Managementjmaterials & labor)
Pre-treatment
On-site Handling
Storage
Treatment
Hauling
Insurance
Disposal
Utilities
Electricity
Steam
Water
Sewerage
348.760
590.100
273.020
Direct Labor
0
1,211,880
0
Other
0
Regulatory Compliance (materials & labor)
Manifesting
Reporting
Monitoring
Testing
Labeling
Permitting
Training
Insurance
Revenues - Sale of Product
Revenues Marketable By-products
0
0
0
0
Total 1.777.670
ALTERNATIVE PROCESS
Annual Cost
Item (S/year) Total
Direct Materials
Fiber Loss (+ transport)
Filler Loss (+ transport)
/Vater Treatment Chems
-locculatmg Agents
89,450
15.940
12,960
28.700
147,050
Waste Management (materials & labor)
're-treatment
Dn-srte Handling
Storage
Treatment
Hauling
nsurance
Disposal
Utilities
Electricity
Steam
/Vater
Sewerage
314.780
196.700
204.760
Direct Labor
Equipment Operation
3.120
Other
0
716.240
3.120
0
Regulatory Compliance (materials & labor)
Manifesting
Reporting
Monitoring
Testing
Labeling
Permitting
Training
Insurance
Revenues - Sale of Product
Revenues - Marketable By-products
0
0
0
0
Total 866.410
Date 1/1/93
Page 4
Difference
"(Curr.-AIL)
418.740
0
495,640
-3,120
0
0
0
0
0
911,260
-------
54
PROJECT TITLE:
IrWV/FIBER (Total Cost Assessment)
Date: 1/1/93
PageS
CAPITAL AND OPERATING COST SUMMARY
NOTE: on this page, a boxed
cell contains user Input - default
values are for Illustration only.
Capital Costs
Purchased Equipment
Materials
Utility Connections
Site Preparation
Installation
Engineering/Contractor
Start-up/Training
Contingency
Permitting
Initial Catalysts/Chemicals
Depreciable Capital
Working Capital
Subtotal
Debt Interest (Installation)
Total Capital Requirement
Salvage Value
Equity. %
Debt. %
Interest Rate on Debt. %
Debt Repayment, years
Equity Investment
Debt Principal
Interest on Debt
Total Financing
Depreciation Period, years
Operating Period, years
Income Tax Rate. %
Escalation Rate. %
Cost of Capital, %
(Discount Rate)
S
345.985
374.822
0
0
397.148
211.046
0
140.403
0
0
1.469.404
0
1.469,404
0
1,469,404
0
100%
0%
12%
5
1.469.404
0
0
1.469.404
15
15
40%
50%
16 00%
I NOTE: all entries shown as percentages
must be entered as decimal numbers
EXAMPLE: enter 0.4 for 40%
Operating Costs
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance "
Maintenance, % Capital
Labor, %
Materials. %
Overhead. % Total Labor
Labor Burden
% Total Labor
Revenues Sale of Produ
Revenues Marketable
By-Products
TOTAL
Future Liability
(Year expected
=1,2,3.etc)
Difference
Current - Alternative (Curr.-Alt )
0%
0%
~5%
~0%
ct
Ref
565.790
0
1,211.880
0
0
0
0
0
0
0
0
0
0
1.777.670
Year Expected
147.050
0
716.240
3.120
0
0
0
0
0
0
0
0
0
866,410
418.740
0
495.640
-3.120
0
0
0
0
0
0
0
0
0
911.260
Cost
(Curr -Alt )
-------
'55
PROJECT TITLE:
IrVW/FIBER (Total Cost Assessment)
Date- 1/1/93
A boxed cell contains user input l|_
Page6
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 120%
Principal Repayment
CASH FLOWS($)
Revenues
* Operating (Costs)/Savings
Operating Cash Flow (BIT)
-Depreciation (DDB/SL)
-Interest on Debt
Taxable Income
- Income Tax at 40 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
0 1
1.000 1.050
0
0
0
439.677
0
520.422
-3,276
0
0
0
0
0
0
0
956,823
1.469.4041 |
1.469.404 1.273.483
97.960
195.921
195.921
0 0
0
0
0
956.823
956.823
195.921
0
760.902
304.361
456.541
195.921
0
1.469.404 0
0 0
0
-1.469.404 652.462
-1.469.404 -816.942
-1.469404 562.467
2
1103
0
0
0
461.661
0
546.443
-3,440
0
0
0
0
0
0
0
1,004,664
1
1.103.686
97.960
169,798
169,798
0
0
0
0
1.004.664
1.004,664
169.798
0
834.866
333.947
500.920
169.798
0
0
0
0
670,718
-146.224
498.452
3
1.158
0
0
0
484.744
0
573,765
-3.612
0
0
0
0
0
0
0
1.054,897
1
956.528
97,960
147.158
147.158
0
0
0
0
1.054.897
1,054,897
147.158
0
907,739
363.096
544.644
147.158
0
0
0
0
691.802
545.577
443.208
4
1.216
0
0
0
508.981
0
602.454
-3.792
0
0
0
0
0
0
0
1.107,642
I
828.991
97.960
127.537
127.537
0
0
0
0
1.107.642
1,107.642
127.537
0
980.105
392.042
588.063
127,537
0
0
0
0
715.600
1.261,177
395.220
5
1.276
0
0
0
534.430
0
632,576
-3.982
0
0
0
0
0
0
0
1,163,024
718.458
97.960
110.532
110.532
0
0
0
0
1.163,024
1.163.024
110.532
0
1,052.492
420.997
631.495
110.532
0
0
0
0
742.027
2.003,205
353.289
-------
PROJECT TITLE:
VWWFIBER (Total Cost Assessment)
Date: 1/1/93
A boxed cell contains user input II
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-prodocts
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment |
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 120%
Principal Repayment
CASH FLOWS(S)
Revenues
+ Operating (Costs)/SavTngs
Operating Cash Row {BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at 40 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
Page?
6
1.340
0
0
0
561.152
0
664.205
4.181 -
0
0
0
0
0
0
0
1,221.176
I
646.613
97.960
95,794
71.846
0
0
0
0
1,221.176
1,221,176
71.846
0
1.149,330
459.732
689.598
71.846
0
0
0
0
761.444
2.764.649
312.529
7
1.407
0
0
0
589.209
0
697.415
4,390
0
0
0
0
0
0
0
1.282.234
I
574.767
97.960
86.215
71.846
0
0
0
0
1.282.234
1.282.234
71.846
0
1.210.388
484.155
726.233
71,846
0
0
0
0
798.079
3.562.727
282.384
8
1477
0
0
0
618.670
0
732.286
-4.610
0
0
0
0
0
0
0
1.346.346
I
502.921
97.960
76.636
71.846
0
0
0
0
1.346.346
1.346.346
71.846
0
1.274.500
509.800
764.700
71.846
0
0
0
0
836.546
4.399.273
255,168
9
1.551
0
0
0
649.603
0
768.900
-4,840
0
0
0
0
0
0
0
1.413.663
1
431.075
97.960
67.056
71.846
0
0
0
0
1.413.663
1.413.663
71.846
0
1.341.818
536.727
805,091
71,846
0
0
0
0
876.936
5.276.210
230.593
1C
1.629
0
0
0
682.083
0
807,345
-5,082
0
0
0
0
0
0
0
1.484,347
359.229
97.960
57.477
71.846
0
0
0
0
1.484.347
1.484.347
71.846
0
1.412.501
565.000
847.500
71.846
0
0
0
0
919.346
6.195.556
208.401
-------
PROJECT TITLE:
WW/FIBER (Total Cost Assessment)
Date: 1/1/93
A boxed cell contains user Input II
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment |
Book Value.
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 12 0%
Principal Repayment
CASH FLOWS($)
Revenues
+ Operating (Costs)/Savmgs
Operating Cash Flow (BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at 40 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
11
1710
0
0
0
716,188
0
847.713
-5.336
0
0
0
0
0
0
0
1.558.564
I
287,383
97.960
47.897
71.846
0
0
0
0
1.558.564
1.558.564
71.846
0
1.486.718
594.687
892.031
71,846
0
0
0
0
963.877
7,159.433
188.358
12
1796
0
0
0
751,997
0
890,098
-5.603
0
0
0
0
0
0
0
1,636.492
I
215.538
97.960
38.318
71.846
0
0
0
0
1.636.492
1,636.492
71.846
0
1,564.646
625.858
938.788
71.846
0
0
0
0
1.010.634
8.170.066
170.254
13
t.886
0
0
0
789,597
0
934,603
-5.883
0
0
0
0
0
0
0
1.718,317
1
143,692
97.960
28.738
71,846
0
0
0
0
1,718.317
1,718.317
71.846
0
1.646.471
658.588
987.882
71,846
0
0
0
0
1.059.728
9.229,795
153.901
1
14
198Q
0
0
0
829,077
0
981.333
-6.177
0
0
0
0
0
0
0
1.804,232
I
71.846
97.960
19,159
71.846
0
0
0
0
1.804.232
1.804.232
71.846
0
1.732.387
692.955
1.039.432
71.846
0
0
0
0
1.111,278
10,341,072
139.127
Pages
15
2079
0
0
0
870.530
0
1.030.400
-6.486
1,894,444
0
97,960
9.579
71.846
0
0
0
0
1.894.444
1.894,444
71.846
0
1.822.598
729.039
1.093.559
71.846
0
0
0
0
1,165.405
11.506.477
125.779
-------
58
PROJECT TITLE: Pages
WW/FIBER (Total Cost Assessment)
PROFITABILITY ANALYSIS SUMMARY
Net Present Value ($)
Internal Rate of Return
Payback (years)
Years 1-5
783,232
37%
1.6
Years 1-10 Years 1-1 5
2,072,306 2,849,725
46% 48%
Year 1-Year of Choice
Year of Choice = } 7 |
Net Present Value ($> 1,378,145
Internal Rate of Return 43%
-------
TOTALCOST ASSESSMENT-METHOD 2
WHITE WATER/FIBER REUSE PROJECT
-------
faO
Date: 1/1/93 Page 1
PROJECT TITLE: WW/FIBER (Total Cost Assessment. Method 2)
PREPARED BY: Risk Analysis Group
ORGANIZATION: Tellus Institute
COMMENTS: This spreadsheet incorporates the data from a Total Cost Assessment of the
whitewater/fiber recycle project.
Method 2 was used for entering the TCA data, i e. incremental operating .costs,
savings, and revenues were entered for the alternative process only
P2/FINANCE
Pollution Prevention Financial Analysis
and Cost Evaluation System
Version 2.0
Copyright 1993
Tellus Institute
Boston, MA
-------
ol
PROJECT TITLE: CAPITAL COSTS Date 1/1/93
WW/FIBER (TCA - Method 2)
A boxed cell contains user Input ||
Capital Costs Cost Totals IRef (Notes
Pi
M.
Ut
Si
Cc
Er
Page 2
jrchased Equipment
Equipment - Phase 1
Equipment - Phase II
Delivery
Sales tax
Price for Initial Spare Parts
iterials
Piping
Electrical
Instruments
Structural
Insulation
330,853
15,132
183.690
67.721
68,465
54.946
345,985
374,822
Saveall and associated pumps & tanks
White water pump
ility Connections and New Utility Systems
Electricity
Steam
Water
Sewerage
Refrigeration
Fuel
Plant Air
Inert Gas
te Preparation
Demolition and Clearing
Old Equipment/Rubbish Disposal
0
0
instruction/Installation
In-house
Contractor
Vendor
397.148
397.148
ginee ring/Contractor
In-house Planning
In-house Engineering
Procurement
Contractor/Consultant
166.946
44.100
211,046
-------
PROJECT TITLE: CAPITAL
WW/FIBER (TCA - Method 2)
A boxed cell contains user Input II
COSTS Date: 1/1/93
Capital Costs Cost Totals
St
Cc
PC
In
W
Sa
art-up/Tralnlng
In-house
Vendor/Contractor
Trials/Manufacturing Variances
Training
0
Ref.
Notes:
Page 3
f
V
mtingency
rmlttlng
Fees
In-house
Contractor/Consultant
tial Charge for Catalysts and Chemicals ,
140.4031 140.4031 (10% of materials, labor, & engineering
0
0
orking Capital
Raw Materials -
Materials and Supplies
Product Inventory A
o'
1
0
Ivage Value
0
* "
-------
PROJECT TITLE:
WW/FIBER (TCA - Method 2)
A boxed cell contains user Input |l
OPERATING COSTS
Date 1/1/93
Page 4
Enter costs as positive values; Enter savings/revenues as negative values
CURRENT PROCESS
Annual Cost
hem (S/year) Total
Direct Materials
Fiber Loss (+ transport)
Filler Loss f+ transport)
Water Treatment Chems
I
Waste Management (materials & labor)
Pre-treatment
On-site Handling
Storage
Treatment
Hauling
Insurance
Disposal
Utilities
Electricity
Steam
Water
Sewerage
Direct Labor
0
0
Other
0
0
Regulatory Compliance (materials & labor)
Manifesting
Reporting
Monitoring
Testing
Labeling
Permitting
Training
Insurance
0
0
Revenues - Sale of Product
0
Revenues - Marketable By-products
0
Total 0
ALTERNATIVE PROCESS
Annual Cost
Item (S/year) Total
Direct Materials
Fiber Loss (+ transport)
Filler Loss (+ transport)
Water Treatment Chems
Flocculating Agents
-357.770
-63.760
-25.910
28,700
-418.740
Waste Management (materials ft labor)
Pre-trea:ment
On-site Handling
Storage
Treatment
Hauling
Insurance
Disposal
Utilities
Electricity
Steam
Water
Sewerage
-33,980
-393,400
-68.260
Direct Labor
Equipment Operation
3.120
Other
C
-495.640
3,120
0
Regulatory Compliance (materials & labor)
Manifesting
Reporting
Monitoring
Testing
Labeling
Permitting
Training
Insurance
Revenues Sale of Product
Revenues - Marketable By-products
0
0
0
0
Total -911.260
Difference
=(Curr.-Altl
418.740
0
495,640
-3.120
0
0
0
0
0
911.260
-------
64
PROJECT TITLE: Date: 1/1/93
WW/FIBER (TCA - Method 2) Page 5
CAPITAL AND OPERATING COST SUMMARY
NOTE: on this page, a boxed
cell contains user input - default
values are for Illustration only.
Capital Costs
Purchased Equipment
Materials
Utility Connections
Site Preparation
Installation
Engineering/Contractor
Start-up/Training
Contingency
Permitting
Initial Catalysts/Chemicals
Depreciable Capital
Working Capital
Subtotal
Debt Interest (Installation)
Total Capital Requirement
Salvage Value
Equity. %
Debt. %
Interest Rate on Debt. %
Debt Repayment, years
Equity Investment
Debt Principal
Interest on Debt
Total Financing
Depreciation Period, years
Operating Period, years
Income Tax Rate. %
Escalation Rate. %
Cost of Capital. %
(Discount Rate)
$
345.985
374.822
0
0
397.148
211.046
0
140.403
0
0
1.469.404
0
1.469.404
0
1.469.404
0
100%
0%
12%
5
1.469.404
0
0
1.469.404
15
15
40%
50%
16 00%
I NOTE: all entries shown as percentages
must be entered as decimal numbers
EXAMPLE: enter 0.4 for 40%
Difference
Operating Costs Current Alternative (Curr-Alt)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance, % Capital
Labor. % 0%
Materials. % 0%
Overhead, % Total Labor |~0%
Labor Burden I 0%
% Total Labor
Revenues - Sale of Product
Revenues -Marketable
By-Products
TOTAL
Future Liability Ref
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Year Expected
-418.740
0
495:640
3.120
0
0
0
0
0
0
0
0
0
-911.260
418.740
0
495.640
-3.120
0
0
0
0
0
0
0
0
0
911.260
Cost
(Curr -Alt )
(Year expected
=1.2.3,etc)
-
-------
6b
PROJECT TITLE:
VWWFIBER (TCA - Method 2)
Date- 1/1/93
A boxed cell contains user input |[
Page 6
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 120%
Principal Repayment
CASH FLOWS(S)
Revenues
+ Operating (Costs)/Savmgs
Operating Cash Flow (BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at 40 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
0 1
1.000 1.050
0
0
0
439.677
0
520.422
-3.276
0
0
0
0
0
0
0
956.823
1.469.4041 |
1.469.404 1.273.483
97.960
195.921
195.921
0 0
0
0
0
956.623
956.823
195.921
0
760.902
304.361
456.541
195.921
0
1.469.404 0
0 0
0
-1.469.404 652.462
-1.469.404 -816.942
-1.469.404 562.467
2
1.103
0
0
0
461.661
0
546,443
-3,440
0
0
0
0
0
0
0
1.004.664
I
1.103.686
97.960
169.798
169.798
0
0
0
0
1.004.664
1.004.664
169.798
0
834.666
333.947
500.920
169.798
0
0
0
0
670.718
-146.224
498.452
3
1.158
0
0
0
484.744
0
573,765
-3.612
0
0
0
0
0
0
. 0
1.054.897
1
956.528
97.960
147.158
147.158
0
0
0
0
1.054.897
1.054,897
147.158
0
907,739
363.096
544.644
147.158
0
0
0
0
691.802
545.577
443.208
4
1.216
0
0
0
508.981
0
602.454
-3,792
0
0
0
0
0
0
0
1.107.642
I
828.991
97.960
127.537
127,537
0
0
0
0
1,107.642
1.107.642
127.537
0
980.105
392.042
588.063
127,537
0
0
0
0
715.600
1.261.177
395 220
5
1.276
0
0
0
534.430
0
632.576
-3.982
0
0
0
0
0
0
0
1.163.024
718.458
97.960
110,532
110.532
0
0
0
0
1.163.024
1.163.024
110.532
0
1,052.492
420.997
631.495
110,532
0
0
0
0
742.027
2.003.205
353 289
-------
bo
PROJECT TITLE:
WW/FIBER (TCA - Method 2)
Date: 1/1/93
A boxed cell contains user Input ||
Page 7
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES {$)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment |
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance ,
Interest Payment at 120%
Principal Repayment
CASH FLOWS(S)
Revenues
+ Operating (Costs)/Savtngs
Operating Cash Flow. (BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at: 40 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
6
1340
0
0
0
561.152
0
664.205
-4,181
0
0
0
0
0
0
0
1.221.176
I
646.613
97.960
95.794
71.846
0
0
0
0
1,221.176
1,221.176
71.846
0
1.149.330
459.732
689.598
71.846
0
0
0
0
761.444
2.764.649
312.529
7
1407
0
0
0
589.209
0
697.415
-4.390
0
0
0
0
0
0
0
1.282.234
I
574.767
97.960
86.215
71.846
0
0
0
0
1'.282.234
1.282.234
71.846
0
1.210.388
484.155
726.233
71.846
0
0
0
0
798.079
3.562.727
282.384
8
1.477
0
0
0
618.670
0
732.286
4.610
0
0
0
0
0
0
0
1,346.346
I
502.921
97.960
76.636
71.846
0
0
0
0
1.346.346
1.346.346
71.846
0
1.274.500
509.800
764.700
71.846
0
0
0
0
836.546
4.399.273
255.168
9
1.551
0
0
0
649,603
0
768.900
-4.840
0
0
0
0
0
0
0
1.413,663
I
431.075
97.960
67.056
71.846
0
0
0
0
1.413.663
1.413.663
71.846
0
1.341.818
536.727
805,091
71.846
0
0
0
0
876.936
5.276.210
230,593
10
1.629
0
0
0
682.083
0
807.345
-5.082
0
0
0
0
0
0
0
1.484,347
359.229
97.960
57,477
71.846
0
0
0
0
1.484.347
1.484.347
71.846
0
1.412,501
565,000
847,500
71,846
0
0
0
0
919.346
6.195.556
208.401
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67
PROJECT TITLE:
VWWFIBER (TCA - Method 2)
Date- 1/1/93
A boxed cell contains user Input II
CASH FLOW ANALYSIS
Operating Year
Escalation Factor
REVENUES ($)
Revenue - Sale of Product
Revenue - By-products
Annual Revenue
OPERATING COSTS ($)
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating Costs
CAPITAL COSTS ($)
Investment |
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DDB)
Tax Depreciation (by DDB /SL)
Debt Balance
Interest Payment at 120%
Principal Repayment
CASH FLOWS($)
Revenues
+ Operating (Costs )/Savmgs
Operating Cash Flow (BIT)
-Depreciation (DDB/SL)
- Interest on Debt
Taxable Income
- Income Tax at 40 0%
Net Income
+ Depreciation (DDB/SL)
-Debt Principle Repayment
-Investment (Less Debt)
(+ or -) Working Capital
+ Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Flow
11
1.710
0
0
0
716,188
0
847.713
-5.336
0
0
0
0
0
0
0
1.558.564
1
287.383
97.960
47.897
71.846
0
0
0
0
1.558.564
1,558,564
71.846
0
1.486.718
594.687
892.031
71.846
0
0
0
0
963.877
7.159,433
188.358
12
1.796
0
0
0
751.997
0
890.098
-5.603
0
0
0
0
0
0
0
1.636.492
I
215,538
97.960
38.318
71.846
0
0
0
0
1.636.492
1.636.492
71.846
0
1.564.646
625.858
938.788
71.846
0
0
0
0
1.010.634
8.170.066
170254
13
1.886
0
0
0
789.597
0
934.603
-5.883
0
0
0
0
0
0
0
1,718.317
I
143.692
97.960
28.738
71.846
0
0
0
0
1.718.317
1,718,317
71.846
0
1.646.471
658.588
987.882
71.846
0
0
0
0
1.059.728
9.229.795
153.901
f
14
1.980
0
0
0
829.077
0
981.333
6.177
0
0
0
0
0
0
0
1.804.232
I
71.846
97.960
19.159
71.846
0
0
0
0
1.804.232
1,804,232
71,846
0
1,732.387
692.955
1.039.432
71.846
0
0
0
0
1,111,278
10.341.072
139.127
>age8
i 15
2.079
0
0
0
870.530
0
1.030.400
-6.486
C
0
1,894,444
0
97,960
9,579
71,846
0
0
0
0
1.894,444
1.894,444
71,846
0
1,822,598
729,039
1.093,559
71,846
0
0
0
0
1.165.405
11.506.477
125,779
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JO'
PROJECT TITLE: Page 9
WW/FIBER (TCA - Method 2)
PROFITABILITY ANALYSIS SUMMARY
Net Present Value ($)
Internal Rate of Return
Payback (years)
Years 1-5 Years 1-10
783,232 2,072,306
37% 46%
1.6
Years 1-15
2,849,725
48%
Year 1-Year of Choice
Year of Choice = | 7 |
Net Present Value ($) 1,378,145
Internal Rate of Return 43%
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b9
APPENDIX D
GLOSSARY OF FINANCIAL TERMS
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Annual Cash Flow
Break-Even-Point
Capital Budget
Cash Flow (from
an investment)
Cost Accounting System
Cost Allocation
Discount Rate
Discounted Cash Flow
Rate of Return (DCRR)
For an investment, the sum of cash inflows and outflows for a
given year (see cash flow).
The point at which cumulative incremental annual cash flows of
an investment aggregate to 0. The Break-Even-Point designates
the end of a project's investment Payback Period (see
Incremental Cash Flow and Payback Period).
A statement of the firm's planned investments, generally based
upon estimates of future sales, costs, production and research
and development (R&D) needs, and availability of capital
The dollars coming to the firm (cash inflow) or paid out by the
firm (cash outflow) resulting from a given investment.
The internal procedure used to track and allocate production
costs and revenues to a product or process. Defines specific
cost/profit centers, overhead vs. allocated costs, degree of cost
disaggregation.
A process within an internal cost, accounting system of assigning
costs and revenues to cost and profit centers for purposes of
product pricing, cost-tracking, and performance evaluation.
The discount rate (or Cost of Capital) is the required rate of
return on a capital investment. In profitability analysis, the
discount rate is used in Net Present Value (NPV) calculations
to express the value of a future expenditure in the present year.
The discount rate is expressed as a percentage.
See Internal Rate of Return.
Financial Accounting
Financial Reporting
The process that culminates in the preparation of financial
reports relative to the enterprise as a whole for use by parties
both internal and external to the enterprise.
Required by authoritative pronouncement, regulatory rule or
custom, including: corporate annual reports, prospectuses,
annual reports filed with government agencies, descriptions of
an enterprise's social or environmental impact.
-------
Financial Statements
Full Cost Accounting
Hurdle Rate
Incremental Cash Flow
(of an investment)
The principal means through which financial information is
communicated to those outside an enterprise. Statements
include the balance sheet, income statement, and statement of
cash flows.
A method of managerial accounting which accounts for both the
direct and indirect -costs of an item. Full cost accounting uses
historical data to assign all costs to a process, product or
product line, most often for purposes of pricing.
The internally defined threshold, or minimum acceptable rate
of return, required for project approval, e.g. 15% ROI, or 2
year payback.
The cash flow of an alternative practice (e.g. after a pollution
prevention investment has been implemented) relative to the
current practice. Incremental cash flow is calculated by taking
the difference between the cash flow for the current practice
and the alternative practice.
Internal Rate of Return
(IRR)
Managerial Accounting
Measure of Profitability
The discount rate at which the net savings (or NPV) on a
project are equal to zero. The computed IRR of an investment
is compared to a company's desired rate of return.
Tne process of identification, measurement, accumulation,
analysis, preparation, interpretation, and communication of
financial information used by management to plan, evaluate,
and control, all activities within an organization to ensure
appropriate use, and accountability for its resources. Capital
budgeting is one component of managerial accounting.
An index that helps to answer the question: are the future
savings/revenues of a project likely
-------
NPV = CF, + _£ + ..... CFn -I
1+k (1+k)2 (l+k)B
where: CF, is cash flow in period 1
CF2 is cash flow in period 2, etc.
I is initial outlay or investment cost
k is cost of capital or discount rate
An investment is profitable if the NPV of the cash flow it generates in
the future exceeds its cost, that is, if the NPV is positive.
Payback Period
Project Financial
Analysis
Project Justification
Process
Project Justification
The amount of time required for an investment to generate
enough cash flow to just cover the initial capital outlay for that
investment.
Payback = Investment/Annual Net Income
Costing (i.e. calculating the costs and savings) and calculating
cash flow and/or profitability measures of a project.
A generic term for a series of steps which are necessary to get-
approval for a project.
A document prepared in the project justification process which
comprising a written description of the project, a project
financial analysis, and a discussion of benefits and risks which
are not quantified in the financial analysis.
Return on Investment
(ROI) A measurement of investment performance, calculated as the ratio of
annual net income (minus depreciation) over the initial investment
amount.
ROI = Annual Net Income/Investment
-------
"/'J
Total Cost Assessment
(TCA) A comprehensive financial analysis of the costs and savings of
a pollution prevention project. A TCA approach includes:
a) internal allocation of environmental costs to
product lines or processes through full cost
accounting;
b) inclusion in a project financial analysis of direct
and indirect costs, short and long term costs;
liability costs, and less tangible benefits of an
investment;
c) evaluation of project costs and savings over a
long time horizon, e.g. 10-15 years;
d) use of measures of profitability which'capture the
long-term profitability of the project, e.g. NPV
and TRR.
-------
74
APPENDIX E
P2/FINANCE ASSUMPTIONS
-------
P2/FINANCE ASSUMPTIONS
1) Salvage Value: The Salvage Value entered into the bottom of page 3 of the spreadsheet
are used in depreciation calculations on pages 6 through 8. Salvage Value is therefore
not adjusted for inflation and the values entered into the spreadsheet should be estimates
of actual salvage value in the final depreciation year. For the sake of simplicity, it is
assumed that this salvage value is cashed in during the final depreciation year and
therefore becomes pan of the cash flow during that year. The Depreciation Period, years
(bottom of page 5) is used for the depreciation calculations and for determining when
the Salvage Value of the capital purchases becomes part of the cash flow.
2) Working Capital: The Working Capital entered into the bottom of page 3 of the
spreadsheet is assumed to be a one time capital expense at the beginning (i.e. year zero)
of the project and a one time revenue at the end of the project. Working Capital is
therefore adjusted for inflation and is cashed in during the last operating year. The
Operating Period, years (bottom of page 5 in the Capital Costs section) is used only to
determine when Working Capital is cashed out. P2/FINANCE will, however, continue
cash flow calculations until the last year shown on the spreadsheet, i.e. year 15.
3) Depreciation Period vs. Operating Period: The Depreciation Period, years (bottom of
page 5 in the Capital Costs column) and the Operating Period, years (in the row below
Depreciation Period, years in the same column) are not always the same. Depreciation
Period, for example, may be determined by a legal definition for tax depreciation
purposes (e.g. 7 years), while the actual expected Operating Period for the equipment
may be longer (e.g. IS years).
4) Construction Year: On page 5 of the spreadsheet, a year of construction time was
assumed as necessary for a typical project. Therefore, in cases where part of the
necessary funding for a project is borrowed (i.e. Debt, % on page 5 is not equal to zero),
one year of interest on the loan (Interest on Debt, %) is added to the Subtotal (in the
same column, eight lines above) of Depreciable Capital and Working Capital to obtain
the Total Capital Requirement which is necessary to have the project/process up and
running at the end of the construction period. The interest for the construction year is
therefore not paid off at the end of that year, but is added to the original capital estimate
and is paid off gradually over the lifetime of the loan.
5) Income Tax Rate: P2/FINANCE accepts only one Income Tax Rate, % (bottom of page
5) for tax calculation purposes. If more than one tax rate is applicable to the project
under analysis, such as state and Federal tax rates, then the rates may be combined to
obtain one equivalent rate for the spreadsheet.
-------
7b
6) Tax Depreciation: There are -three tax depreciation lines (in the Capital Costs($)
section) on pages 6 through 8 of the spreadsheet. These three lines illustrate figures for
Straight-Line (SL) Depreciation, Double Declining-Balance (DDE) Depreciation, and
Depreciation by DDE switching over to SL. Although all three figures are shown for
each year of depreciation, the first two depreciations are used to calculate the DDB-SL
Depreciation which is actually used for tax deduction purposes.
7) Principal Repayment: For cases hi which a loan will be obtained to finance the
proposed project, the loan principle is paid off hi constant installments determined by the
Debt Repayment, years (Capital Costs column on page 5) and as illustrated by Principle
Repayment (middle of pages 6 through 8). The corresponding Interest Payment (one
row above Principle Repayment on pages 6 through 8) is variable, depending on the Debt
Balance (one row above Interest Payment on pages 6 through 8) of the previous year.
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