ABSTRACT
This chapter focuses on project valuation, discussing the various types of debt that a utility can incur to pay for a project once the concept of the time-value of money is clear. After discussing the various types of debt, it compares them – no matter whether the types of debt, the rates or the terms are all different – by using the time-value of money. The topics covered are calculating change in value, compounding and discounting, the rate of change, choosing a compound or discount rate, types of debt, comparing types of debt, and factors that inflate project costs. Changes in value are calculated by two reciprocal procedures. Calculating value going forward in time is called compounding. Calculating value going backward in time is called discounting. There are three rates that are commonly used as compound or discount rates: inflation rate, reinvestment rate, and random rates.
