TheImprovement ofTropical and Subtropical Rangelands

66 IMPROVEMENT OF TROPICAL AND SUBTROPICAL RANGELANDS
DlIcOllDted Cash Flow
One of the basic tools for determining economic feasibility is
discounted cash flow. All cash expenditures are tabulated for comparison
during the chosen period each year. The total cash expenditure
for each year is then discounted to the present and cumulatively
added to a single sum. This sum is then compared with similar sums
of discounted expenditures for alternatives. The alternative with
the smallest sum is dearly the least costly. A similar comparison
is made with cash revenues or receipts for the same period. The
ratio between the sum of the discounted receipts and the sum of the
discounted expenditures yields the benefit-cost ratio.
Certain rules must be followed in making discounted cash flow
analyses:
• The same period of years must be used for each alternative
set of cash expenditures and each alternative set of cash receipts.
• The alternatives must have the same production and capacity.
In some cases, this may require adjustments to the costs ofthe lowest
cost alternative.
• Cash expenditures will include renewals and replacementsj
however, ifthe years in which these will be made cannot be accurately
predicted, an estimated average annual cash expenditure for renewals
and replacements as well as an accelerated depreciation schedule can
be used, since those costs will occur far in the future.
Discounting transforms all future costs and revenues into the
present time frame so they can be compared on a current monetary
basis. These sums are simply called the present worth or present
value. All future expenditures and revenues are modified or discounted
by a factor that provides escalation arising from opportunity
costs and resource depletion.
The benefit-cost ratio technique is perhaps the most commonly
applied in analyzing capital projects. The method compares the
current worth of costs and benefits on a ratio basis. Projects with a
ratio of less than one are generally discarded.
DETERMINING COSTS AND BENEFITS
Computing costs and benefits involves use of simple withoutwith
comparisons. Specific allowances are not made for time lags,
except for charging interest for use of capital. Budgeting in such
a static framework, or without-with project-context comparisons,