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APPENDIX C:
Glossary of Economic Terms
benefit An incoming (positive) cash flow.
benefit decline factor (BDF) Fractional year-to-year decline in
benefits,incorporated into estimate to allow for effects of
unforeseen events.
contingency factor Fraction of initial optimistic cost estimate
added onto cover unexpected costs.
control performance A measure of how well a control system meets
itsobjective, typically expressed as some function of deviation
from target(e.g., range, standard error). Contrast with process
performance, eco-nomic performance.
cost An outgoing (negative) cash flow.
decision tree A method for displaying the effect of choices
during aproject or among projects.
discount factor The value by which a future cash flow must be
multi-plied to convert it into a present cash flow.
economic performance A measure of how well a plant or unit meets
itsobjective, expressed in financial terms (e.g., ROI). Contrast
with processperformance, control performance.
first cost Initial investment in a project, before operation
starts and bene-fits are realized.
fixed cost Any cost that does not vary with production rate.
internal rate of return (IRR) The rate of return that will set
net presentvalue= 0.
market limited If the output of a production facility is limited
by theamount of its product that can be profitably sold, it is said
to be marketlimited.Contrast with production limited.
net cash flow The algebraic sum of positive and negative cash
flows.
net present value (NPV) The current value of future cash
flow(s).
opportunity cost Income that could be earned by an alternative
use ofresources committed to a project.
