Question

Many, if not most, investment projects have a time element with a typical investment project involving initial outlays followed by cash inflows. How is this time element best determined and why?

Answer 1

Time element is the important part of each project and it is best determined on the basis of the project's ability to produce cash inflows, time of investments that can be one time or incremental, useful life of the project and regular depreciation of the capital goods involved. These dimensions help establish the time frame of the project, delivering benefits and incurring costs. On this basis, timeframe is identified, cash flows are calculated and evaluation techniques are applied to verify the feasibility of the project.

Above mentioned method is the best method to determine time element, because it is limited to the useful life of the project and it precisely identifies the cash flows of different nature. Once the cash flows become zero or negligible, the time period of the project is completed.