planning for capital investments performance evaluation concepts

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1、Weygandt_2ndEd._CH131/23/097:57AMPage572CHAPTER13PlanningforCapitalInvestmentsNOTANEASYPATHTOFOLLOWCALGARY-BASEDTransCanadaCorporationisfastbecomingtheleadingenergyinfrastructurecompanyinNorthAmerica.TransCanada’snetworkofnaturalgaspipelinesextendsmorethan59,000kilometres,tappingint

2、ovirtuallyallmajorgassupplybasinsinNorthAmerica.TransCanadaisoneofthecontinent’slargestprovidersofnaturalgasstorageandrelatedserviceswithapproximately10bil-lioncubicmetresofnaturalgasstoragecapacity.InJuly2008,theAlaskaHouseofRepresentativesapprovedaplanbyTrans-Canadatorunanaturalga

3、spipelinesouthfromPrudhoeBay,Alaska,throughpartsoftheYukonandBritishColumbiatoAlberta,whereithasexistingpipelinestoEasternCanadaandtheUnitedStates.ThisapprovalbytheStateofAlaskaisjustthebeginningofalongregulatoryprocessthatwillextendovermanyyears.ThenextmajorhurdleforTransCanadaisto

4、obtainanapprovalbytheU.S.FederalEnergyRegulatoryCommission.Thisapprovalwilltakeyearstoobtainandwillbeaverycostlyprocess,althoughtheStateofAlaskawillcoverhalfofTransCanada’sproposalcosts(uptoamaximum$500million).InadditiontoU.S.Federalap-proval,TransCanadawillhavetoobtainasignificant

5、numberofotherauthorizationsfromCanadianfederal,provincial,andterritorialgovernmentssincetheproposedpipelinecrossesanumberofdifferentjurisdictions.Intheenergybusiness,theabilitytodealwithmultiplelevelsofgovernmentandotherstakeholdersiskeytogettingprojectscompletedontimeandwithinbudge

6、t.Discountedcashflowanalysisisacriticaltoolintheanalysisofmulti-yearenergyprojectsthathavecapitalexpendituresthatrunintobillionsofdollars.Asidefromusingthesetechniquestoevaluateitsownprojectedreturns,TransCanadawasalsorequiredtodeterminethenetpresentvaluetotheStateofAlaskathatwoulda

7、ccruefromthebuildingoftheproposedpipeline.CashflowstotheStatewillarisefromroyalties,production,andothertaxes.TheTransCanadaanalysisexaminedStatereturnsusingarangeofdiscountratesbetween2and8%anddiscountingtotwodifferentdates:January2008and2018.Forexample,thenetpresentvalueasatJanuary

8、2008,basedonan8%dis