Initial Investment Costs and Revenue
Initial investment cost is the total advance expenditure needed to start a business or execute a project, including all costs incurred prior to operations commence, such as acquiring assets, equipment, land, building railway, commercial center, and airport. It represents the fundamental capital required to establish the asset, as well as measuring future returns and computing financial gains and losses.
Projected Costs and Revenue
Example
Blacksutton Limited is planning a strategic investment in Railway project in one of the major cities of United Kingdom. An investment appraisal is required to evaluate its financial and economic viability as to whether the investment will be worthwhile.
The summary details of the initial investment cost required to launch the project is shown below:
Workings:
Daily estimated revenue = Average Rail ticket per day x estimated number of commuters is £12,972,000 (1,380,000 x £9.40).
Total annual estimated revenue = No. of days of Rail services x Daily estimated revenue is £4,666,920,000 (12,972,000 x 360)
Total revenue = Capital repayment schedule (in years) x No. of years is £140,097,600,000 (4,669,920,000 x 30).
Note: The net present value of the project is positive (£20,523,969,101), and therefore the investment is viably worthwhile.