Modern Cost-Benefit Methods: An Introduction to Financial, by George Irvin (auth.)

By George Irvin (auth.)

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Looking at the post-tax NPV curve for the project as a whole, the condition for accepting it on financial grounds will be that it should show a positive NPV at the appropriate opportunity cost of funds. Hence, if this was judged to be 20 percent the project would be acceptable while a 25 percent figure would resuIt in a negative decision. Note, however, that once the opportunity cost of funds exceeds the cost of debt finance (11 percent), the post-tax NPV of the net flow on equity funds becomes greater than the posttax NPV of the net operating flow; the former is still positive at a 25 percent figure and only becomes negative at a 28 percent discount rate.

00 per pair (gross revenue Sh. 20,000) and incurring annual costs of Sh. 12,500 thus netting Sh. 7,500, or an average annual return of 23 percent (7,500/33,000) on total capital. Initial back-of-the-envelope calculations were as follows: 1 Had an IRR been calculated on the basis of these figures (assuming zero scrap value of fixed assets at the end of the 10 year period), a figure of just over 18% would have been derived. It should be apparent that the 23% figure shown above makes no allowance for the value of receipts accruing at different points in time.

I of Little & Mirlees (1972), while a lucid account of cash flow budgeting techniques is to be found in Part I of Bierman & Smidt (1971). The Spanish speaking reader may find it worthwhile to consult ILPES (1973) which is essentially a guide to project presentation. Price Gittinger (1972), besides covering the general methodological problems associated with the appraisal of agricultural projects, also contains a useful introduction to accounting conventions and layout. Finally, an introduction to the principles of an integrated documentation system is to be found in the early sections of Hansen (1973), which in tum is based on the work of Powelson (1969).

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