Cash Flow Estimation for Environmental Capital Investment

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This study focuses on the capital budgeting. The capital budgeting has a few primary issues. One of them is cash flow estimation by capital investment decision. This cash flow is brought by capital project. For example, investment to a new plant brings cash flow to the company. Now a new type of investment projects occurs because environmental problem is serious and urgent to us all over the world. These are the environment conscious projects that save energy and reduce wastes. The real object of this study is to explore the way to estimate the cash flow of environmental capital investment. To build this cash flow estimation model of the environmental project, it is essential to know the state of the art. In addition, now growing number of these investment projects are accepted. I visited many companies to search this investment practice in Asia and Europe. In Japan and Europe, it was clear to accept environmental project positively. Many companies invest to the environmental capital p … More rojects to acquire strategic edge. In effect, many excellent companies have an environment strategy as a part of corporate strategyIn general, cash flow of capital project is brought by cost reduction and sales increase. To do this, machinery as an investment project must decrease resource consumptions or produce more than ever. These benefits are financially measured as a project cash flow. But the benefit of environmental capital project is not the same as general project. Because benefit of environmental project is difficult to measure financially, it must be measured more extensively. Generally environment-related activities are included in various activities done by indirect department. Often, these activities can't be identified clearly. To measure the resource consumption by environmental activity, this activity should be isolated. This isolation of environmental activity can be implemented by Activity-Based Costing (ABC). ABC differentiates the environmental activity from general indirect activities. Investment to environmental capital project can reduce resource consumptions by environmental activity. In the case of waste disposal cost, many materials, labor and so on are not necessary to deal with wastes. This resource consumption savings finally result in cash inflow. In addition, recycle and energy savings have the same effect on cash flow. For estimating environmental project cash flow, these benefits must be identified and measured as cash flow by ABC. In this study, this new cash flow estimation model is presented. This model can contribute to the right investment decision of environmental project Less