AES Case

Cost Analysis: Finance will develop an investment plan spread over the projected timeline and secure capital investment to fund the plan.

1.1. Review principles of estimating project cash flows. Suggested reading: Ch. 9 “Capital Budgeting and Cash Flow Analysis” in “Contemporary Financial Management”, 11th ed. by Moyer, McGuigan, and Kretlow.

The relatively well posed project with promises of great future pay offs must be examined closely nevertheless to determine its true profitability. As such, the Super Project’s NPV must be calculated, however before we proceed we must acknowledge the relevant cash flows. The project incurred an expense of testing the market. This expense, however, must not be included in our cash flow analysis because it can be considered a sunk cost. This expense is required for ‘taking a temperature’ of the market and will not be recovered. Other sources of cash flow include:

The financial strategy employed by AES was historically based on project finance. The model worked well in the domestic market and in the international operations. However, when AES started its diversification of business, it had to face to increasing symmetrical risks, such as business risk. In addition, project finance did not include the risk of

This project will most likely involve debt financing. This means that interest expense would occur and should be taken into account in the analysis of the project. Interest expense is a cash expense and is automatically included when the net cash flows are

592 Week 1 DQ 1 WBS Construction PROJ 592 Week 1 DQ 2 Project Cost Estimates and Assumptions PROJ 592 Week 2 DQ 1 Cost Components PROJ 592 Week 2 DQ 2 Estimating Processes PROJ 592 Week 3 DQ 1 Project Schedules PROJ 592 Week 3 DQ 2 Sensitivity Analysis PROJ 592 Week 4 DQ 1 Resource Allocation and Leveling PROJ 592 Week 4 DQ 2 Advanced Schedule Techniques PROJ 592 Week 5 DQ 1 Earned Value Calculation PROJ 592 Week 5 DQ 2 Project Monitoring and Control & EV PROJ 592 Week 6 DQ 1 Forecasting Project Completion Cost PROJ 592 Week 6 DQ 2 Project Control PROJ 592

These also give us a detailed view of the expected schedule of cash flows over the ten years, which basically tell us what the yearly income will be. This can be helpful when analyzing the yearly distribution of cash flows.

In real live project with more cash flow after the pay back period would be more valuable than Project with no cash flow, yet its payback and discounted payback make it look worse. This is the reason, the shorter the payback period, other things held constant, the greater the project’s liquidity. Apart from this, since cash flows expected in the distant future are generally riskier than near-term cash flows, the payback is often used as an indicator of a project’s riskiness because the longer the payback period the higher is the risk associated with the project (Brigham, 2004) (Fabuzzi, 2003).

budget. As the project evolves, additional information is discovered and further estimates are produced. This is an extremely important process and we cannot emphasize enough the need for this re‐estimation or re‐budgeting process at each phase of the project. In any case, for the purpose of this article, we will call the revised budget the "actual budget." Another standard activity is to provide management with an expected cash flow. From a financial perspective this is an important activity, but it also can be used as your cost expectation.

A. The company needs to focus on the free cash flows instead of the accounting profits since these are the funds flow the company will receive and will be able to reinvest. By examining the cash flows they will be adapt to predict the profits and/or expenses timetable. The company’s interests in these cash flows are on an after-tax basis since they are part of the shareholders dividends. Additionally, the additional cash flows are of important, because, after analyzing the project while viewing the company as a whole, the additional cash flows are seen as minimal benefits and will show the elevated value to the company if the decision is made to implement the project.

The question that transcends the project is whether equity investors be sufficiently rewarded to justify there financing interests. The answer to this question is dependent

On the other hand, more debt does not affect the risk of the project under taken, but means less equity holders , these bring more risk to equity holders, the cost of equity increases with debt. assume Ra is the WACC without leverage.

Within the project-based organizations is developed throughout the completion of projects. Between the non-project based organizations, the other areas of the project are completed

AES’s western laissez-faire management style and organizational structure did not work due to Georgia’s past sour relationships with suppliers that were fueled by unpaid debts, theft and corruption. AES’s,

The structure of a project’s financing depends on the industry the transaction is taking place, the underlying business model and in particular the allocation of risks and responsibilities between the individual partners (Weber & Alfen, 2010).