TABLE OF CONTENTS Allen L.Clapp
President, Clapp Research Associates, P.C., Member, IEEE
This primer is intended to give a quick introduction to the financial considerations which drive the decisions to start or abandon a project. The bottom line on any project is that it is either better or worse than alternative investments. Money is the usual medium for measuring "better" because all the other factors, like risk, reputation, and enjoyment, often can be translated into a monetary equivalent.
The decision to start a project, and the selection of the method to finance it, may involve many interrelated factors. Chief among these factors are the values of project costs and receipts, interest rates, possible returns from other projects, tax regulations, and available financing. The remainder of this primer briefly discusses these items and illustrates the economic differences resulting from three different methods of financing a project: (1) 100% financing by the owner, (2) 50% owner's equity and 50% borrowed debt, and (3) leasing from another owner.
The illustrations herein are intended to convey the certain knowledge that taking shortcuts on economic analysis may lead to an inappropriate decision. This is particularly true when a long-term project, like a new energy production system, is being evaluated against a short-term project, like purchasing specialty machinery for producing a product which has a limited sales life. The correct decision is the one which yields the greatest total value to the owner.
Money has no value of its...
