Economic Evaluation of Projects Requiring Environmental Remediation: A Case Study of the Double-Root Problem

Abstract:

This article starts by describing all solutions to all problems that consist of a first cost (P), a series of uniform cash flows (A), and a final cash flow (F) including the boundary conditions for no, single, and multiple real roots of positive and/or negative sign. These results are applied to an important class of projects that require significant expenditures for environmental remediation at the conclusion of operation, such as open pit mines and nuclear power plants. When there are two positive roots, there must be a very large negative cash flow at the end, so that the total set of cash flows is more like a loan than an investment. Also, the positive present worth is very sensitive to the large final cash flows which have large uncertainties. Given these results, relying on a simple present worth evaluation seems unwise and proceeding with the project based on a positive present worth may be dishonest. The boundary conditions applied to combinations of P, A, and F cash flows for these examples may also be useful conditions for other problems that potentially have multiple roots. If so, then these results provide a dramatically different perspective on the multiple root problem.

Keywords::

• Project Evaluation
• IRR Double Root
• Environmental Remediation