Abstract
In this paper, the author discusses six appraisal fomulae, five of which are already widely used for general feasibility study and one new one based upon his own theories. The new equation differs from the others in that it takes into account the rate of inflation during the project term. This will affect the calculation of the sinking fund (Sta) at abandonment time of the project.
The author also attempts to determine the most pertinent of the aforementioned formulae and discusses the properties of his own equation. His conclusion are as follws:
1) When considering investment value using the‘initial rate of return’method, the difference between positive and negative cash flow can simply be considered as cash flow.
2) When we using‘hoskold’, ‘morkill’and author's own formulae the investment amount should be calculated as follws: The value by which the negative (investment) cash flow after second year is discounted by annual speculative rate (the rate of return of the project) to it's present value.
3) Calculation of rate of return by new equation is useful and easy to read; when the result of the rate of return calculation is positive, the project is profitable; if it is negative it probably is not.
4) Because of the result of new equation is based upon the solid foundation of the annual safe interest rate (bank interest) any appraisal of project is very strict. Any project that appears feasible by this new equation can be regarded as containing very littie risk.
