This document discusses key concepts for evaluating the economic viability of waste management strategies. It outlines factors to consider such as compliance, costs, and natural resource conservation. Methods are presented for estimating capital costs, operating costs, fixed costs, variable costs, and revenue. Metrics like payback period, net present value, internal rate of return, and benefit cost ratio are also introduced as measures for analyzing the profitability of different waste management options.
This document discusses key concepts for evaluating the economic viability of waste management strategies. It outlines factors to consider such as compliance, costs, and natural resource conservation. Methods are presented for estimating capital costs, operating costs, fixed costs, variable costs, and revenue. Metrics like payback period, net present value, internal rate of return, and benefit cost ratio are also introduced as measures for analyzing the profitability of different waste management options.
This document discusses key concepts for evaluating the economic viability of waste management strategies. It outlines factors to consider such as compliance, costs, and natural resource conservation. Methods are presented for estimating capital costs, operating costs, fixed costs, variable costs, and revenue. Metrics like payback period, net present value, internal rate of return, and benefit cost ratio are also introduced as measures for analyzing the profitability of different waste management options.
This document discusses key concepts for evaluating the economic viability of waste management strategies. It outlines factors to consider such as compliance, costs, and natural resource conservation. Methods are presented for estimating capital costs, operating costs, fixed costs, variable costs, and revenue. Metrics like payback period, net present value, internal rate of return, and benefit cost ratio are also introduced as measures for analyzing the profitability of different waste management options.
Download as PPT, PDF, TXT or read online from Scribd
Download as ppt, pdf, or txt
You are on page 1/ 25
MODULE 4
BASICS OF ECONOMIC ASSESSMENT Importance of Economic Analysis of Waste Management Strategies
• Long-term performance of a business
Reasons to Evaluate Waste Management Options • Compliance with governmental regulations • Reduction of disposal costs • Conservation of natural resources • Reduction in the use of landfills • Development of a positive customer relationship Elements of Cost Analysis • Capital costs
• Operating costs Capital Costs • Costs incurred in the planning and construction phases of a project and the equipment costs for processing and handling of wastes/residues Operating Costs • Definition: costs associated with the daily operation of a facility
• Types – Direct costs – Indirect costs Direct Costs • Definition: those costs directly involved in operating the facility. • Examples: labor, materials, maintenance and maintenance supplies, replacement parts, and utilities costs Indirect Costs • Definition: costs associated with, but not directly involved in, operating a business.
• Examples: overhead, administrative fees,
local property taxes, and insurance fees. Method of Cost Estimation • Fixed costs
• Variable costs
• Revenue Fixed Costs • Costs that do not change with the level of operation • Examples – Depreciation – Interest on investments – Taxes and insurance – Permit and licensing fees Depreciation • Definition: a method of allocating the cost of a capital asset over the anticipated life of the asset • Methods – Straight-line method – Accelerated depreciation method Methods • Straight-line method Cost of asset – Trade-in Value . Service life of asset in years • Accelerated depreciation method – More depreciation in the early periods and less in the later periods Interest on Investments • Interest on depreciated value • Interest on half of cost new • Interest on total cost new Interest on Investments
Interest on investment = [1/2(depreciable cost + Estimated salvage value)] x (Interest rate) Other Fixed Costs • Taxes and insurance
• Permit and licensing fees
Variable Costs • Definition: operating expenses that vary directly with the level of the activity and the location • Examples – Direct costs – Indirect costs Direct Costs • Labor • Utilities cost • Maintenance and repair costs • Raw material Indirect Costs • Local property taxes • Insurance • Administrative fees • Fines and penalties Revenue • Government grants received • Tipping fees charged from outside operations • Revenues from sales of compost or recyclables • Avoided costs associated with project Method of Cost Estimation • Total costs estimation:
Total costs = Fixed costs + (Variable cost
per unit) x (Expected volume) Measures of Profitability • Payback period • Net present value • Internal rate of return • Benefit cost ratio Payback Period • The estimation of the length of time it will take to recover the initial capital investment
Initial investment Payback period = ----------------------------------- (in years) Net annual cash saving Net Present Value • Represent future receipts in present dollar terms
n CFt NPV = ------------- - Initial investment t-1 (1+ r)t Internal Rate of Return • Measure the value of long-term investment using the discounted cash flow concept.
A1 A2 A3 A0 = --------- + ---------- + …+ ---------- - IC (1+ i) (1+ i)2 (1+ i)n Benefit Cost Ratio • The ratio of total benefits to total costs of a project
