The most common tools for analyzing a project are the financial ones. The best of these is the Net Present Value method, where the cash flows in and out are discounted to what they would be worth at the start date and added up to determine whether they are positive or negative. A positive net present value signifies a stream of cash flows worth buying, and thus a project worth investing in. The estimation of cash flows for project appraisal may be viewed as having four main stages:
ò forecasting the capital outlays and operating cash inflows (e.g. cash proceeds from product sales) and outflows (e.g. expenses) of the proposed project;
ò adjusting these estimates for tax factors, and calculating the after-tax cashflows;
ò determining the variables which have the greatest impact on the project's net present value (sensitivity analysis); and
ò allocating further resources, if necessary, to improve the reliability of the critical variables identified
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