CHEN 4501W Lecture Notes - Lecture 6: Net Present Value, Cash Flow, Commodity Chemicals

• School: UMN
• Department: Chemical Engineering
• Course: CHEN 4501W
• Professor: Derby Jefferey

Document Summary

Last lecture: talked about evaluating economics1st 3 ones aren"t good b/c doesn"t account for time value of money. Time value of money r = interest rate n = years tells us how much we will get paid in the future. If a project generates a stream of future cash flows ci, the present value of these is given by: n = projected lifetime. Ci = cash flow expected after year i r = rate of return (related to time value of money, but other factors too) Take into account the capital spending that occurs before the start of the project (t = 0), More realistically, where i <= 0 represents construction and ci < 0 for i <= 0 this is the most conservative/most consistent way of taking into account. Npv = 0 means that our initial expenditures have returned a rate of r over the lifetime of the project. but npv > 0 is still better.