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Appendix D provides formulas for calculating the portion of principal in each payment, the portion of interest in each payment, and the principal aemaining in each period. Common stock does not include an obligated fixed annual charge and carries no fixed maturity dates. Also, common stock can be sold more easily than debt because it is appealing to investors given the fact that common stock usually offers higher returns than that of debt and represents ownership in the company. With common stock there is no legal obligation to pay dividends. However, common stock extends ownership and voting rights as well as a share in income. Also, the cost of underwriting and distributing common stock (flotation costs) is usually higher than both debt and preferred stock. Preferred stock, like common stock, does not include an obligated fixed annual charge and carries no fixed maturity dates. Preferred stock owners may not participate in voting and do not get equal participation ofearnings;however,theydoreceiveanydividendsbeforecommonstockholdersdo. Preferredstock, ontheotherhand,mustbesoldonahigheryieldthandebt. Dividendsassociatedwithpreferredstock are not tax deductible, making their cost differentid great in comparison with debt. These are only a few of the advantages and disadvantages of the different forms of financing. The financial manager must weigh these differences to make decisions about the optimal mix of financing for the firm. In an economic analysis, financing should be considered only if it will make a difference when comparing alternatives. For instance, if the terms of financing are identical for the comparison of two alternative investments,thenfinancingmakesnodifferenceandshouldnotbeincluded. Ontheotherhand,ifan investor wants to construct a plant and low-interest rate financing is available for only the solar plant but not for a conventionalalternative,then financingis a critical part of the comparisonand must be included. Financing must also be included in an analysis of cash flow requirements. When financing is included in an analysis, then annual cash flows must be used to compute most economic measures such as net presentvalue(NPV),returnoninvestment(ROI),andlife-cyclecost&CC). Thesimplifyingassumptions of the FCR, as expressed earlier, are not appropriate when project-specific financing is included. Investor Perspective Theeconomicviabilityofaninvestmentfrequentlywillbedifferentfordifferentinvestors. Forexample, a demand-side management investment by a utility will be viewed differently by the utility, the customer receiving the demand-side system, customers not receiving systems, and the utility stockholders. Investor perspective refers to this difference in viewpoints. Discussion Although the differences among investors often seems intuitive, there are several points that deserve explicit mention: An investment may be economical fkom the point of view of one investor or stakeholder but not from that of another. In any comparison of alternative investments, each alternative should be evaluated from the same perspective. For example, a commercial firm’s levelized cost of energy (electricity) saved (after accounting for tax deductions) through aninvestmentin a heat pump for space conditioning should not 26PDF Image | A Manual for the Economic Evaluation of Energy Efficiency and Renewable Energy Technologies
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