Chapter 4

Cash Flow and Investment Analysis

§4.1 Introduction

As a large part of this book deals with the financial aspects of PPPs and their effect on policy issues, it is necessary for the reader to have a basic understanding of certain key concepts used in financial analysis, which will be used hereafter. A PPP deals with cash flows over long periods of time, and the value of money is affected by the time that this money is received or paid. It is evident that a dollar today is worth more than a dollar in a year’s time, but is a dollar today worth more than two dollars in a year’s time? Two interlinked types of calculation are normally used to make this decision:

• a discounted cash flow (DCF) calculation, which gives a value today, or ‘net present ...

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