Financial Expression for Cement Companies Chair Man
Simple payback period
Simple Payback Period (SPP) represents, as a first approximation; the time (number of years) required to recover the initial investment (First Cost), considering only the Net Annual Saving
Internal rate of return (IRR)
This method calculates the rate of return that the investment is expected to yield. The IRR method expresses each investment alternative in terms of a rate of return (a compound interest rate).The expected rate of return is the interest rate for which total discounted benefits become just equal to total discounted costs (i.e. net present benefits or net annual benefits are equal to zero, or for which the benefit/cost ratio equals one).The criterion for selection among alternatives is to choose the investment with the highest rate of return.
The rate of return is usually calculated by a process of trial and error, whereby the net cash flow is computed for various discount rates until its value is reduced to zero. The internal rate of return (IRR) of a project is the discount rate, which makes its net present value (NPV) equal to zero.
Internal Rate of Return (IRR) – measure that allow comparison with other investment options
Net Present Value (NPV)
Net Present Value (NPV) – measures that allow financial planning of the project and provide the company with all the information needed to incorporate energy efficiency projects into the corporate financial system.
The Net Present Value of a project is equal to the sum of the present values of all the cash flows associated with it.
The discount rate (k) employed for evaluating the present value of the expected future cash flows should reflect the risk of the project.