3

In order to receive funding, be it equity, debt, or a combination of both, energy resource optimization projects must be evaluated with respect to other project opportunities and uses of available funding. Prospective investors go to great lengths to properly evaluate capital investments. Often times, they will use a mixture of simple analytical tools, such as payback or substitute comparisons, and more complex tools, such as internal rate of return and other cash analysis tools, as well as price earnings (PE) and other net income oriented ratio analysis tools. All have their place and all have their weaknesses. A good investor will use many or even all of these analytical tools, while relying heavily on previous experience in investing to make a decision.

It is important to remember that the results of any analysis are only as valid as the assumptions on which they are based. Sophisticated analysis performed with gross estimates of costs and savings, or of risk or escalation rates, will likely not yield useful results. In making capital budgeting presentations, it is strongly recommended to properly categorize the low- and high-risk projects and assign higher return requirements to the riskier commitments. To do otherwise might allow the analysis results to direct all funds to the high return, high risk ventures.

This chapter focuses on the analytical tools used to evaluate capital commitments. It begins with definitions of the most commonly used tools in formal capital budget analysis and then proceeds with a detailed discussion of the most commonly used financial analysis techniques.

Guide to Alternative Fuels

Guide to Alternative Fuels

Your Alternative Fuel Solution for Saving Money, Reducing Oil Dependency, and Helping the Planet. Ethanol is an alternative to gasoline. The use of ethanol has been demonstrated to reduce greenhouse emissions slightly as compared to gasoline. Through this ebook, you are going to learn what you will need to know why choosing an alternative fuel may benefit you and your future.

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