431

Term

Energy Savings

+

Net OM&R Savings -

Financing Costs =

Cash Flow

24 months (negative]

$12,000

+

$1,500 -

$22,842 =

($9,342)

36 months (negative]

$12,000

+

$1,500 -

$15,900 =

($2,400)

48 months (positive]

$12,000

+

$1,500 -

$12,443 =

$1,057

Table 43-1 Monthly Cash Flow Analysis for Various Financing Terms at 9% Interest Rate.

Table 43-1 Monthly Cash Flow Analysis for Various Financing Terms at 9% Interest Rate.

As shown in Table 43-1, with a financing term of 48 months or longer, the project would show monthly positive cash flow. In a sense, the cost of project financing is buried in the existing expense budget. If a project can produce positive cash flow, a third-party financing format allows a facility to use dollars, itemized as expense, to help implement capital projects that might otherwise not capture limited capital investment budget dollars.

If, in this example, the simple annual interest rate were increased to 15%, the project would show negative cash flow, or shortfall, in each of the three finance term options considered in Table 43-1. As shown in Table 432, a longer finance term of 60 months would be required if the project is to yield a positive cash flow in each monthly payment period.

Energy Term Savings

Net OM&R + Savings

Financing Costs =

Cash Flow

48 months $12,000

+ $1,500

$13,915 =

($415)

(negative]

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