1. ACCOUNTING CONCEPTS

2. BASIC CASH FLOW MODEL  REVENUES = PRICE * VOLUME = R  SALVAGE = VALUE OF CAPITAL AT THE END OF THE PROJECT LIFE = S  PROFIT = REVENUES - COM, R - COM  COM = COSTS OF MANUFACTURE

3. CASH FLOW CALCULATION  CASH BEFORE TAXES = R - COM = Cb  PROFIT BEFORE TAXES = Cb - D = Pb  PROFIT AFTER TAXES = Pb*(1 - TAX) = Pa  CASH AFTER TAXES = Pa + D – CAP  SPREADSHEET CONFIGURATION

4. DISCUSSION OF CATEGORIES  YEAR YEAR IS NORMALLY STARTED WITH A VALUE OF 1 YEAR IS NORMALLY STARTED WITH A VALUE OF 1 THE VALUES BASED ON THE AMOUNTS IN THE FIRST YEAR WHEN AMOUNTS ARE COMPOUNDED OR DISCOUNTED THE VALUES BASED ON THE AMOUNTS IN THE FIRST YEAR WHEN AMOUNTS ARE COMPOUNDED OR DISCOUNTED WHEN TIME VALUE OF MONEY IS CONSIDERED THE FIRST YEAR VALUES WILL INCREASE OR DECREASE FROM THE CONSTANT DOLLAR VALUES WHEN TIME VALUE OF MONEY IS CONSIDERED THE FIRST YEAR VALUES WILL INCREASE OR DECREASE FROM THE CONSTANT DOLLAR VALUES

5. DISCUSSION OF CATEGORIES  CAPITAL, CAP  INVESTED CAPITAL IS A POSITIVE VALUE THAT IS CONSIDERED A NEGATIVE CASH FLOW – MONEY SPENT  CAPITAL SOLD AS WORKING CAPITAL OR SALVAGE HAS A NEGATIVE VALUE AND IS CONSIDERED A POSITIVE CASH FLOW – MONEY EARNED

6. DISCUSSION OF CATEGORIES  FIXED CAPITAL (DEPRECIABLE)  WORKING CAPITAL (NOT DEPRECIABLE) INVENTORIES OF RAW MATERIALS AND FINISHED GOODS INVENTORIES OF RAW MATERIALS AND FINISHED GOODS GOODS IN PROCESS (ESTIMATED VALUES) GOODS IN PROCESS (ESTIMATED VALUES)  SALVAGE (SUBTRACTED FROM DEPRECIABLE TOTAL)

7. DISCUSSION OF CATEGORIES  FIXED CAPITAL THE EQUITY PORTION IS NORMALLY INVESTED OVER THE INITIAL YEARS OF THE PROJECT THE EQUITY PORTION IS NORMALLY INVESTED OVER THE INITIAL YEARS OF THE PROJECT  IF A PROJECT INCLUDES DEBT/EQUITY FINANCING THE CAPITAL INVESTED STARTS WITH THE EQUITY INVESTMENT THE CAPITAL INVESTED STARTS WITH THE EQUITY INVESTMENT THE EQUITY VALUE INCREASES WITH EACH PAYMENT TOWARDS THE NOTE THE EQUITY VALUE INCREASES WITH EACH PAYMENT TOWARDS THE NOTE EQUITY COMPONENTS ARE POST-TAX PROFITS EQUITY COMPONENTS ARE POST-TAX PROFITS

8. DISCUSSION OF CATEGORIES  FIXED CAPITAL  THE ORIGINAL TOTAL PROJECT FIXED CAPITAL VALUE IS USED FOR CALCULATING DEPRECIATION, RATHER THAN THE EQUITY  ADDITIONAL FIXED CAPITAL INVESTMENTS MAY BE MADE AT LATER PERIODS, DUE TO EXPANSIONS OR PROCESS MODIFICATIONSMAY BE MADE AT LATER PERIODS, DUE TO EXPANSIONS OR PROCESS MODIFICATIONS DEPRECIATION STARTS AT THE TIME OF THE ADDITIONAL INVESTMENTDEPRECIATION STARTS AT THE TIME OF THE ADDITIONAL INVESTMENT

9. DISCUSSION OF CATEGORIES  WORKING CAPITAL  NORMALLY INVESTED AT THE START OF OPERATIONS  CAN BE ADJUSTED EVERY YEAR, USING TAXED PROFITS  IS SOLD OFF AT THE END OF THE PROJECT  IS NOT DEPRECIABLE

10. DISCUSSION OF CATEGORIES  REVENUES, R  POSITIVE VALUES THAT ARE CONSIDERED AS POSITIVE CASH FLOWS  BASED ON PRICE OF PRODUCT AND VOLUME  CAN BE ADJUSTED TO REFLECT INITIAL START- UP PERIOD WHEN IT MAY BE BELOW DESIGN LEVELS  CAN BE ADJUSTED ANNUALLY IN TERMS OF PRICE AND VOLUME TO PROVIDE A REALISTIC PATTERN  INCLUDES ANY BYPRODUCTS SOLD OUTSIDE THE PROCESS  NORMALLY DOES NOT INCLUDE CREDITS FOR UTILITIES GENERATED BY THE PROCESS – THESE ARE IN THE COST OF MANUFACTURE CATEGORY

11. DISCUSSION OF CATEGORIES  COST OF MANUFACTURE, COM  POSITVE VALUES CONSIDERED AS NEGATIVE CASH FLOWS  VARIABLE COSTS RAW MATERIALS RAW MATERIALS ENERGY ENERGY UTILITY CREDITS UTILITY CREDITS OTHER PRODUCTION BASED CONSUMABLES OTHER PRODUCTION BASED CONSUMABLES

12. DISCUSSION OF CATEGORIES  FIXED COSTS INCLUDE  INSURANCE  PROPERTY TAXES (NOT INCOME TAXES)  CORPORATE AND PLANT OVERHEAD http://www.learnenglish.org.uk/images/taxman.gif

13. DISCUSSION OF CATEGORIES  FIXED COSTS INCLUDE  DEBT/EQUITY FINANCING COSTS FOR LOANS  THE INTEREST PORTION IS AN EXPENSE  THE PRINCIPLE PORTION IS NOT CONSIDERED AS AN EXPENSE, SO REMAINS IN THE BEFORE-TAX PROFIT CATEGORY IS NOT CONSIDERED AS AN EXPENSE, SO REMAINS IN THE BEFORE-TAX PROFIT CATEGORY THE TAXED VALUE IS INCLUDED IN THE PROFIT AFTER TAXES, P b THE TAXED VALUE IS INCLUDED IN THE PROFIT AFTER TAXES, P b THE TOTAL PAYMENT TO PRINCIPLE THE TOTAL PAYMENT TO PRINCIPLE TRANSFERRED TO THE CAPITAL COLUMN AS A NON- TAXED TOTALTRANSFERRED TO THE CAPITAL COLUMN AS A NON- TAXED TOTAL IS DEDUCTED FROM CASH FLOW AFTER TAXES AS A CAPITAL EXPENSEIS DEDUCTED FROM CASH FLOW AFTER TAXES AS A CAPITAL EXPENSE

14. DISCUSSION OF CATEGORIES  REGULATED COSTS  HAVE A FIXED AND VARIABLE CHARACTER  LABOR  LABORATORY  PLANT AND CORPORATE OVERHEAD SUCH AS CORPORATE RESEARCH

15. DISCUSSION OF CATEGORIES  DEPRECIATION, DEPR  CONSIDERED AS A POSITIVE PRE-TAX EXPENDITURE  THE VALUE IS CONSIDERED A POSITIVE CASH FLOW AND IS ADDED TO THE AFTER-TAX PROFIT  THE DEPRECIATION SCHEDULE IS DEVELOPED BASED ON THE TOTAL FIXED INVESTMENT THE TOTAL FIXED INVESTMENT THE DATE OF INITIAL OPERATION FOR PROFIT THE DATE OF INITIAL OPERATION FOR PROFIT THE DEPRECIATION METHOD USED FOR THE PROJECT (SOYD FOR OUR PROJECT) THE DEPRECIATION METHOD USED FOR THE PROJECT (SOYD FOR OUR PROJECT)  DEPRECIATION IS NOT ADJUSTED FOR INFLATION, BUT IT IS ADJUSTED FOR DISCOUNTED CASH FLOW CALCULATIONS

16. DISCUSSION OF CATEGORIES  PROFIT BEFORE TAXES, P b  CONSISTS OF REVENUES LESS C.O.M. AND LESS DEPRECIATION  FOR FINANCING THE INTEREST PORTION IS CONSIDERED IN THE C.O.M. THE INTEREST PORTION IS CONSIDERED IN THE C.O.M. BUT THE PRINCIPAL PORTION REMAINS WITH THE REVENUES BUT THE PRINCIPAL PORTION REMAINS WITH THE REVENUES

17. DISCUSSION OF CATEGORIES  TAXES  INCOME TAXES, NOT PROPERTY TAXES  BASED ON FEDERAL AND STATE TAX RATES (TOTAL FOR OUR PROJECT ASSUMED TO BE 35%)  NORMALLY CONSIDERED TO BE A CONSTANT RATE OVER THE LIFE OF THE PROJECT

18. DISCUSSION OF CATEGORIES  TAXES WITH A LOSS  A BEFORE-TAX PROFIT LOSS, WHICH RESULTS IN CALCULATION OF A NEGATIVE TAX VALUE MUST BE CARRIED FORWARD TO A LATER YEAR (TAX LOSS CARRY FORWARD) MUST BE CARRIED FORWARD TO A LATER YEAR (TAX LOSS CARRY FORWARD) THERE IS NO REFUND OF NEGATIVE TAXES THERE IS NO REFUND OF NEGATIVE TAXES THE TAX FOR THE LOSS YEAR IS ZERO THE TAX FOR THE LOSS YEAR IS ZERO THE PROFIT LOSSES ARE APPLIED TO FUTURE PROFIT GAINS TO DETERMINE THE P b IN THE LATER YEAR THE PROFIT LOSSES ARE APPLIED TO FUTURE PROFIT GAINS TO DETERMINE THE P b IN THE LATER YEAR  THIS METHOD OF TAX LOSS ADJUSTMENT IS SOMETIMES USED BY COMPANIES WHO AQUIRE OTHER FIRMS FOR THE PURPOSE OF PICKING UP THEIR ACCUMULATED TAX LOSS

19. DISCUSSION OF CATEGORIES  CASH FLOW AFTER TAXES, C a  CASH AFTER IS THE SUM OF THE PROFIT AFTER PLUS DEPRECIATION, MINUS ANY CAPITAL CHARGES  FOR A PROJECT WITH DEBT/EQUITY FUNDING, THE PORTION OF THE NOTE PAID TO PRINCIPLE IS CONSIDERED AS A CAPITAL EXPENDITURE, SO A NEGATIVE CASH FLOW  THE CASH FLOW AFTER TAX AMOUNTS ARE THOSE THAT ARE DISCOUNTED FOR CALCULATION OF DISCOUNTED CASH FLOW RATE OF RETURN (DCRR)

20. DISCUSSION OF CATEGORIES  DCRR (DISCOUNTED CASH FLOWRATE OF RETURN)  MOST SPREADSHEETS HAVE A FUNCTION CALLED EITHER DISCOUNTED CASH FLOW OR INTERNAL RATE OF RETURN THAT CAN BE APPLIED TO A SPECIFIC COLUMN  FOR OUR PROJECTS, THE PRICE OF THE PRODUCT IS NORMALLY ADJUSTED TO OBTAIN THE TARGETED DCRR

21. DISCUSSION OF CATEGORIES  CUMULATIVE CASH FLOWS, CUM C a  CUMULATIVE CASH FLOWS ARE THE SUM OF THE ANNUAL CASH FLOWS, C a  TYPICALLY NEGATIVE DURING THE INITIAL PHASES OF A PROJECT, DUE TO CAPITAL EXPENDITURES  THE YEAR IN WHICH THE CUM C a  VALUE REACHES ZERO (WITHOUT DISCOUNTING) DETERMINES THE BREAKEVEN VALUE  FOR A DCRR CALCULATION, THE CUM C a  VALUE AT THE END OF THE PROJECT IS ZERO, BY DEFINITION