ABSTRACT
The fundamental concept of financial evaluation is whether any cash outlay now will result in cash benefit in the future, and if so, whether the cash returns will be enough to justify the investment. In this chapter, the fundamentals of yearly cash flow principles have been discussed with examples. Time value of money in terms of compound interest has been explained. Commonly used methods for financial evaluation such as payback method, return on investment, net present value, internal rate of return and benefit/cost ratio have been discussed. This chapter concludes with brief discussion on the four basic parameters, viz., initial costs, future costs, time frame of the project and discount rate.
